The M&A market is set to rebound in 2024 according to research by Norton Rose Fulbright (NRF) and Mergermarket which records a rise in optimism among senior executives about their prospective deal activity.

Nearly a quarter (23%) of 200 senior company, investment bank and private equity executives who took part in the study believe they will be involved in significantly more deals this year, compared to just 5% who held the same view at the start of last year.

While the respondents’ optimism about the wider market is more muted – just under half (47%) expect global activity to increase compared to 23% who expect it to fall – the authors of the second annual Global M&A Trends and Risks 2024 report strike an optimistic note, global M&A activity having fallen to a 10-year low in 2023.

Ayşe Yüksel Mahfoud, global head of corporate, M&A and securities at NRF, said a variety of factors were leading to an increase in optimism. 

“Pent-up demand, significant amounts of PE dry powder, increased availability of private debt, falling inflation levels, and the expectation of lower or at least steady borrowing rates, all point to a more active global M&A market in 2024,” she said. “Similar to 2023, deal drivers will be ESG and energy transition, digital transformation (especially AI-related), and supply chain shifts, though dealmakers will have to navigate an increasingly strict regulatory environment in most places.”

The respondents expect the technology sector to drive the most cross-border activity in 2024 with 71% putting it in their top three sectors. Life sciences and healthcare and industrials were the next most popular sectors.

The report notes a “remarkably high proportion of respondents” – 33% –  looking to acquire an AI target, a proportion that rises to 54% among private equity respondents. It suggests that AI-infused companies, as opposed to pure AI businesses, are the most attractive targets.

While industry consolidation, new products and services, and digital transformation are identified as the top drivers of global M&A, ESG emerges as an important driver for deals in Europe, Canada, Australia and New Zealand.

The director of M&A at a Swiss company told the researchers: “Net zero targets in Europe are ambitious. Companies will find M&A targets to support their net zero commitments, and ESG due diligence will become an important part of the dealmaking process.”

However, while antitrust regulations were identified as the biggest regulatory drag on deals by the respondents, nearly a quarter put ESG-related regulation among the top two suppressing factors. Some 73% also expect ESG scrutiny around the world to increase.

In terms of regional M&A activity, the respondents were most optimistic about Asia: more than two-thirds (68%) believed deals would increase in South and Southeast Asia with 53% believing the same of East Asia. Some 46% are expecting activity to increase in the US, while 39% believe there will be an uptick in European activity.

Meanwhile, the respondents were divided over whether the availability of M&A-related financing would increase after a challenging 2023. While 37% expect it to become easier to source finance a third expect no change in conditions while 31% expect circumstances to worsen.

The report highlights the “meteoric rise” of private debt as a source of funding, dubbing it “one of the most striking features of this study”.

It notes: “Private debt has soared in popularity since the Q1 2023 edition of this research. At that time, just 14% of respondents identified private debt as the most important form of future financing/funding that they expected to employ in their M&A deals. But with traditional financing conduits under pressure, almost a third (31%) now point to private debt as the most important source.”

However, Raj Karia, NRF’s head of corporate, M&A and securities, Europe, Middle East and Asia, warned: “Private debt availability continues to grow but market participants are starting to question the sustainability of this trend.”