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Dealmakers navigate economic uncertainty amid a softening US labor market
Labor market softening in the US is evident as job openings per unemployed have dropped to 1.07 in July 2024, the lowest since March 2021, indicating a weakening labor market compared with the tight conditions of early 2022 when the ratio was above 2.0. Despite the headwinds, M&A activity should remain resilient, mainly due to large deals driven by well-capitalized firms looking to strengthen their market positions and capitalize on favorable acquisition terms. Dealmakers must be prudent to identify opportunities that are strategic and offer long-term value creation. As the public markets react to recessionary fears, the environment may present attractive valuations for businesses seeking consolidation or strategic partnerships.
US M&A activity remains resilient in August, driven by surge in deal value for large deals
The US recorded US$137b in deal value (US$100m+ deal volume), representing a 44% increase year over year (YoY) and an 8% increase month over month (MoM). Deal volume comprised 115 deals, a 5% increase YoY. The surge highlights the confidence in the market across sectors to make strategic acquisitions. The sustained growth in larger deal values suggests that companies are capitalizing on certain valuations and opportunities for consolidation.
Monthly global M&A trend (2022 onwards)
Deal value (US$100m+); deal volume (US$100m+)
The chart illustrates the fluctuations in M&A activity from January 2022 to August 2024, highlighting a notable decline in early 2022 followed by recovery phases, with deal values and volumes experiencing peaks and troughs. A significant year-over-year increase of 44% in deal value indicates a positive trend in the M&A market.
Source: EY Insights and Dealogic
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Capital market shifts and specific sector dynamics influence M&A
The M&A landscape is being shaped by several key trends, including the evolving dynamics of capital markets where interest rates and liquidity conditions play a crucial role in influencing dealmaking appetite and valuations. Capital markets traditionally rely on established valuations and patterns to guide investment decisions within a complex environment. However, the current market scenario challenges these norms, making predictions and valuations difficult. Additionally, sector-specific opportunities in technology, energy and life sciences are driving deal activity, buoyed by trends in digital transformation, sustainability and health care innovation. Furthermore, geopolitical tensions and shifts in economic policies present challenges and opportunities, affecting cross-border transactions and shaping investment strategies. Together, these factors create a complex environment for M&A activity, demanding strategic agility and insight from participants.
PE investments rise with anticipation of rate cuts and stronger markets
PE investments in the US have increased, driven by anticipation of rate cuts, stronger financing markets and moderating valuations. However, the exit environment remains challenging, with PE exits in 2Q24 declining compared with 1Q24. This decline is more rooted in supply-side issues, as general partnerships focus on optimizing portfolio company performance to present compelling equity stories for potential buyers.
Key deal drivers
AI investment and digital transformation
Energy transition and sustainability efforts
Portfolio optimization and strategic realignment
Geopolitical factors and regulatory changes
US sector breakdown for US$100m+ deals – year to date
Sector
Volume
Volume change
Value
Value change
Technology
256
Up 43% YoY
US$258b
Up 65% YoY
Consumer products and retail
37
Down 19% YoY
US$68b
Down 33% YoY
Oil & Gas
73
Up 18% YoY
US$152b
Up 39% YoY
Additional risks to dealmaking in 2024
Geopolitical tensions and the upcoming elections
Potential policy missteps by the Federal Reserve that could derail broader and relatively robust US growth
An unseen systemic shock — in financial plumbing, such as the repo market; in banks generally; and in the commercial real estate market
Looking ahead to 2H24
Momentum matters: Strong enthusiasm for larger deals can further provide a boost to dealmaking confidence.
The US will benefit most from the return of PE acquirers, which we expect to see as 2024 progresses, as it will be from the return of a stronger flow of tech-related M&A.
The US has a relatively stronger economic growth forecast for 2024 and beyond compared with other areas of the world.
Fundamental drivers of M&A persist through an uncertain environment
Dealmakers are navigating a complex landscape, with economic and geopolitical uncertainties posing downside risks. A softening US labor market, credit tightening, student debt repayments, high leverage in some sectors and global economic weakness are among the concerns. Geopolitical tensions also threaten economic activity and financial market stability. Despite these challenges, the US M&A landscape shows promise, particularly because of the resilience of the American economy. This suggests a positive medium- to long-term outlook, with the potential for a strong rebound in M&A activity later this year.
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Despite a softening US labor market, the M&A sector shows resilience with a 44% year-over-year increase in deal value for large transactions. The report attributes this growth to strategic acquisitions in key sectors like Technology, and anticipates continued robust activity, driven by factors such as technological advancements and energy transitions, despite potential economic and geopolitical headwinds.
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