2024 M&A and Debt Market Trends in the Technology Industry

This presentation will highlight recent trends in mergers and acquisitions (M&A) and debt markets for technology businesses, including generative artificial intelligence (AI) in M&A, antitrust, national security, representations and warranties (R&W) claims, shareholder activism, and economic and covenant trends in debt financings.

Key Takeaways

Global M&A Top Trends In 2024

M&A dealmakers have been on a wild ride as of late: from the pandemic-fueled rout in 2020 to 2021’s record-breaking recovery to a steep decline in 2023, the decade’s global M&A market has offered something of 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.

Key Drivers of M&A in 2024

Generative AI

• AI infrastructure companies enhancing core products
• Enterprise software companies answering market needs
• Vertical players accelerating use of AI
• Startups exiting sooner

Antitrust

• US and global antitrust agencies kept their promise to increase scrutiny of acquisitions
• New merger guidelines indicative of paradigm shift
• Enforcement abroad on the rise

National Security

• US review hyper-focused on high-risk sectors (CFIUS)
• Expansion of global foreign direct investment review regimes
• US outbound investment review (Reverse CFIUS)
• Increase in global sanctions and export controls

Representations and Warranties Insurance

• New types of claims related to cybersecurity and privacy reps, tax reps, and, in the manufacturing sector, environmental reps
• Longer wait for claim payouts
• Delays due to inadequate information

Shareholder Activism

• Activists pushing for or complicating M&A efforts
• SEC modernizes beneficial ownership filings
• Anti-ESG movement

Looking Forward

• Dealmakers anticipate the M&A environment will follow the trend from Q4 2023 and continue to improve.
• Assets that did not come to market in the down year of 2023 will fuel active dealmaking in 2024.
• Corporates will sell assets that do not fit with their strategy; private equity will sell aging portfolio companies.

Debt Market Trends in 2024

Private credit fundraising has slowed over the last few months, though investors remain optimistic about the asset class and expect to allocate more capital to those funds next year. According to Preqin, global private debt fundraising declined in the first quarter of 2024 to $31.6 billion, a 25% drop from a year earlier.

Defaults rise, but so does optimism. Despite an increase in defaults, the outlook for leveraged credit is more optimistic at this point than early in 2023 when inflation, rising interest rates, and a looming maturity wall provided causes for concern. Economic growth has surprised to the upside, and primary market accessibility continues to normalize. Sentiment has improved significantly.

Leveraged buyouts remain muted as costs rise. The first quarter of 2024 saw a significant drop in new money leveraged loan volume, reaching its lowest level in years. This decline can be attributed to subdued M&A activity, resulting from soaring financing costs and persisting valuation disagreements between buyers and sellers.

Interest rates are (maybe) on the move—whether up, down, or sideways remains to be seen.