Renewed Focus on Technology to Drive Reentry into the M&A Market Next Year
“Global M&A activity is continuing its downward march from record levels in 2021, down 50% from the peak,” said Mark Carroll, VP Analyst at Gartner. “Macroeconomic and regulatory challenges reinforce the trend, but a renewed focus on technology, particularly AI, provides tailwinds for executives to reenter the M&A market in a big way next year.”
“M&A remains a growth engine for most enterprises, so next year will see success increasingly depend on how executives pivot to handle these market trends,” said Chris Ganly, VP Team Manager at Gartner. “Delivering M&A success will mean positioning their enterprises for market leadership for many years to come.”
Trend 1: Macroeconomic Ambiguity Unlocks Technology M&A Opportunities
According to Gartner, macroeconomic ambiguity will persist in 2024, with mixed positive and negative signals distorting expectations on inflation, recession, employment, cost of capital, and business and consumer confidence.
Previously expensive startup technology companies will struggle to raise their next round of venture funding and will be seeking alternatives, which includes being acquired by strategic buyers. Gartner recommends that well capitalized enterprises take advantage of this by pursuing acquisitions of smaller technology focused businesses (techquisitions) with lower valuations and less access to funding than would typically be available in clearer economic conditions.
Trend 2: AI Use Will Improve the M&A Process
The use of AI will have a profound impact on improving the speed, efficiency and overall performance of M&A processes, according to Gartner. However, the specifics of how or where AI will be used are emerging to identify what is practical now versus long-term possibilities.
Gartner recommends applying AI within internal M&A processes first by developing and testing diverse use cases. In particular, contract analytics is an impactful application for using AI right now to improve activities tied to letter of intent (LOI) negotiation, contract due diligence, definitive agreement and TSA negotiation, and contract renewals and integration.
Trend 3: AI Strategy Will Require New Approaches for Acquiring AI-Based Businesses
While M&A of AI-based businesses is not trending yet for enterprises, Gartner believes the enterprise focus on this technology will lead to a wave of deal activity in 2024. According to the 2023 Gartner CEO and Senior Business Executive Survey, AI was identified as the top disruptive technology impacting industries.
Gartner recommends the acquisition of AI businesses needs to be forefront in all business strategies in 2024. Those that lack the skills or time horizon to build capabilities on their own can use M&A to gain access to the technology.
Trend 4: Increased Regulatory Scrutiny Will Hinder Large M&A Activity
Regulatory scrutiny of M&A deals, particularly on anti-competition and national security grounds, is increasing and will continue to be a major factor hindering large M&A deals in 2024, according to Gartner. However, this trend raises the appeal of executing a large number of smaller, more industry-diverse M&A deals, which can create a competitive advantage in this environment.
“Sharper regulatory scrutiny, which can have a chilling effect on large M&A transactions, can also create a competitive opportunity for enterprises best positioned to complete a higher volume of smaller deals,” added Ganly. “For those focused on larger deals, it’s important to take a more proactive approach with regulators next year.”
