Dive Brief:

• Deal-making surged 41% during last quarter compared with Q3 and may continue to rebound from a lull last year as deal-makers seeking to shake up corporate strategies begin to deploy $2 trillion in available private equity capital, McKinsey said Tuesday.
• The recovery in mergers and acquisitions in Q4 “points to increased optimism returning to the market, along with a growing appetite to consider M&A as a means to advance strategy,” Jake Henry and Mieke Van Oostende, co-leaders of McKinsey’s global M&A practice, said in a report.
• The rapid spread of artificial intelligence, growing emphasis on sustainability and emergence of a “demanding, tech-enabled consumer class” will likely underscore the superiority of dealmaking in achieving strategic goals compared with organic growth, Henry and Van Oostende said.

Dive Insight:

Deal-makers in January announced four transactions exceeding $10 billion for the second straight month, logging the highest worldwide total during a two-month period since the announcement of 11 large deals from April through May 2022, according to S&P Global Market Intelligence.

In the most recent so-called mega-deal, Capital One agreed to buy Discover in a $35.3 billion all-stock transaction, the companies announced Monday.

The number of large deals declined in 2022 and 2023 because of high interest rates and a cloudy outlook for the economy, S&P Global said.

Banks have emerged in 2024 as a top target for M&A. Deal-makers announced 10 U.S. bank deals in January valued at about $855 million following a decade low of just 98 such announcements in 2023, according to S&P Global.

Greater economic stability is encouraging M&A, Henry and Van Oostende said.

“Higher interest rates have tempered the inflationary trends so worrying to central bankers,” they said, noting also that robust consumer spending and healthy job growth have also prompted deal-making.

“This improving picture has buoyed economists’ hopes of a soft landing for the U.S. economy — a sentiment shared by many investors who boosted stock market returns at the end of the year,” Henry and Van Oostende said.

Optimism regarding corporate profit growth this year will probably also spark deal-making, they said. Revenue will likely grow 5% this year, with EBITDA gains of 8% to 9%, they said, citing the consensus among analysts.

The outlook for deals is not all bright, they said. Two-thirds of respondents to a McKinsey survey late last year flagged geopolitical turmoil as a top threat to global economic growth this year — the largest share identifying such instability as a leading risk since just after Russia invaded Ukraine in February 2022.

“Concerns about political transitions also emerged as a top risk to global economic growth,” Henry and Van Oostende said, noting that the nearly 1,000 respondents from a broad range of regions and industries were optimistic about their own economies.

After a record year in 2021, the value of global M&A fell 16% last year to $3.1 trillion — a weaker outcome than in 2020, the first year of the pandemic, McKinsey said.