Current market temperature and trends
The panelists noted that despite some pockets of robustness in 2024, the current year’s deal market has generally been a continuation of the slower-paced, choppier market that emerged in 2023.
Our panelists shared the following key trends:
- Deals continue to unravel due to valuation misalignment and diligence issues. Even deals that reach closing are taking longer to consummate due to deeper diligence exercises, protracted purchase price renegotiations, and/or increased regulatory scrutiny.
- We’re seeing creative responses from financial sponsors that are looking for returns on capital, including the rise of secondary investments and net-asset-value (NAV) financing.
- The quality of acquisition targets is strong but valuations remain lofty so competition for top-tier assets remains.
- Lower middle-market deal flow has not seen a commensurate dip in activity because sale timelines are often driven by business owners looking to sell their business and retire, so they are not looking for the perfect market conditions before entering the market.
- Competitive auction processes are placing more emphasis on proper diligence, thus reducing the pressure for condensed transaction timelines.
Outlook for the remainder of 2024 and beyond
The discussion surrounding the remainder of 2024 was focused on the upcoming US presidential election and the recent 50 bps interest rate cut from the Federal Reserve. In 2020, there was a heightened urgency to close deals before the end of the year or before the election results were in out of fear of dramatic policy or tax changes, but that’s not what our panelists are currently hearing with respect to 2024 deals (despite expectations to the contrary).
One panelist characterized the market’s reaction to the upcoming election as a “sigh,” and elaborated that today’s market does not seem to be affected whatsoever by the candidates’ respective positions. Deals that are already in the works now are looking to close by the end of 2024, but for deals that are just now reaching the term-sheet phase there does not seem to be a strong election-driven impetus to close those deals by year end.
Although September’s interest rate cut was slightly higher than the panelists expected, it may have been too late to salvage the 2024 fiscal year and will likely not be the catalyst to deal flow that many expected it would be. While our panelists don’t predict a return to 2021/22 M&A activity levels, all are hopeful that more consistent deal flow is on the rise as we close out 2024 and head into 2025.
The role of women in the PE and M&A market
Despite the lackluster M&A market, women in M&A continue to shine. Nixon Peabody’s Women in Dealmaking Initiative reached a significant milestone of 1,000 women in its network since its inception in 2021. The panelists believe initiatives like this help support and empower women in the traditionally male-dominated M&A and PE industries because they provide a space for women to share their experiences and showcase the growth women have had in corporate America. Achieving equality remains the ultimate end goal and a lot of work is still required to get there. But, the panelists do believe that hard work and a relentless pursuit of excellence—coupled with intentional supporting structures like NP’s Women In Dealmaking Initiative—will continue to promote and propel women dealmakers in the years to come. Another encouraging development is the advent of sponsors and investors focusing on diversity among their advisors.
Now that women have a seat at the table, and oftentimes the head of the table, those women are actively investing in the continued success of the next generation of female leaders and problem solvers to ensure that many additional seats for women open up.