Morgan Stanley forecasts a significant surge in global M&A activity this year, projecting a 50% increase compared to 2023.
The note suggests that concerns regarding funding costs, inflation, and recession are diminishing, paving the way for heightened deal-making.
The brokerage firm perceives this period as a thawing “winter” for mergers and acquisitions, anticipating a resurgence both cyclically and secularly. While Europe and North America are expected to experience the most pronounced upticks in deal-making, favorable conditions are also foreseen for regions like India, Australia, South Korea, Japan, and ASEAN countries.
Factors such as aggressive interest rate hikes, inflationary pressures, and recession fears had dampened M&A activity in 2023, resulting in a 35% decline in global deal volumes – the lowest since 2004. However, with expectations of future interest rate cuts, cooling consumer prices, and a positive economic outlook, a rebound in M&A activity is anticipated.
Additionally, the demand for AI and cloud capabilities, the transition towards clean energy, and advancements in life sciences are identified as catalysts for increased deal-making. Sectors such as healthcare, real estate, staples, and technology are expected to be primary beneficiaries.
Regarding funding, Morgan Stanley suggests that cash and debt appear more attractive options than equity, despite the rise in bond yields.
With ample cash reserves and favorable investment grade markets, strategic players are seen to have a financial advantage, while sponsors may feel pressured to act swiftly regardless of macroeconomic conditions.