M&A dealmakers have been on a wild ride: from the pandemic-fueled rout in 2020 to 2021’s record-breaking recovery to a steep decline in 2023, the global M&A market has offered a masterclass in volatility. While global M&A activity, in terms of value, fell to its lowest level in 10 years in 2023, deal count did not drop as steeply as deal value, reflecting a focus on smaller deals.
Rising interest rates, ongoing economic uncertainty, regulatory headwinds, and geopolitical tensions were major factors behind the downturn in global M&A. The M&A market showed signs of recovery in Q4 2023, with technology M&A being a top choice for dealmakers, accounting for 27% of deal value.
Generative Artificial Intelligence
Big tech companies partnered with startups to solidify their positions as suppliers of artificial intelligence (AI) infrastructure components.
Strategic enterprise software companies have moved to add AI capabilities to their product offerings so their customers can build their own AI tools.
Companies in industries with more mature-AI use cases, including biotech, legal, fintech, and edtech, have acquired AI startups with industry-specific AI expertise.
Amid rapid evolution, AI startups risk quick obsolescence and an uncertain road to commercialization. This reality check is prompting startup founders and venture capital investors to move up their exit timetables, resulting in AI startups being sold sooner than anticipated.
Antitrust
In 2024, increased scrutiny from US and global antitrust agencies is expected to continue amid major administrative changes, including a new Hart-Scott-Rodino Act form and recently finalized merger guidelines. Among the changes in the merger guidelines are new tests for the market definition as well as lower thresholds to presume mergers are illegal.
Enforcement abroad is also on the rise. The European Commission adopted a package of reforms in its merger control regime, while UK and Chinese regulators have each conducted more intensive reviews of transactions involving US technology companies.
National Security
Just as antitrust agencies scrutinized potential mergers last year, a similar focus was placed by the Committee on Foreign Investment in the United States (CFIUS). CFIUS review was broadly focused on transactions involving persons from China or Russia, as well as from proxy countries such as the Cayman Islands, but, more specifically, on transactions involving emerging technologies. Among other things, CFIUS is subjecting more actions to investigation following initial review, requiring full visibility into the acquirer’s ownership, and imposing more mitigation agreements.
The expansion of global foreign direct investment (FDI) review regimes has been driven, in large part, by a continued global trend towards protection of critical infrastructure, security and reliability of the supply chain, and technology leadership as well as sovereignty.
Representations and Warranties Insurance
Following the heightened M&A volumes of 2021 and early 2022 and the proliferation of representations and warranties insurance (RWI) prior to that time, 2023 saw an uptick in the number of RWI claims and disputes over those claims. In 2024, there are new types of claims that are related to cybersecurity and privacy reps, tax reps, and, in the manufacturing sector, environmental reps.
Shareholder Activism
Activists continue to pressure boards to sell companies, in whole or, increasingly in part via a spinoff or divestiture—perhaps reflecting the weaker M&A market. Effective February 5, 2024, Schedule 13Ds must be filed within five business days, down from 10, after crossing the 5% beneficial ownership threshold, and Schedule 13Gs by Qualified Institutional Investors must be filed within 45 days after quarter-end, instead of 45 days after year-end. With the compressed reporting period, unless activists are willing to stay under the applicable reporting threshold, companies will get quicker notice of activist accumulations.