The first three months of 2024 witnessed stronger than anticipated growth driven by robust consumer spending, above-average economic growth, a strong job market, rising profit expectations, and the possibility of rate cuts later this year.
The much-feared US recession did not occur as labour markets held steady and inflation decreased. Instead of the much-feared slowdown in growth, an elusive "soft landing" for the economy was on the horizon, with inflation returning to the Fed's target range and a strong labour market maintaining high levels of discretionary income for workers. These elements played their part in driving the strong stock performance that persisted in the year.
The financial markets' recent upswing offers the conditions for a more robust M&A market to resume. Most bankers anticipate three to six rate cuts in the US, signaling the end of the interest rate hikes that have been occurring frequently over the last two years. The funding environment will be more stable even if rates decline more gradually, making it simpler for dealmakers to price, carry out, and arrange their agreements. We anticipate that strategic purchasers will carry on with their practice of making bolt-on, lower-value purchases in 2024 to enhance their current product and geographic portfolios. In the fintech industry it is expected that the strategic buyers' venture arms will continue to take minority investments in fintech companies.
The following key developments had a strong bearing on M&A and Capital markets’ activities across the global financial services market during Q1’24:
- Confidence for deal making has improved on the back of strong earnings, potential interest rate cuts this year and an ebullient market
- While several investment grade companies borrowed to seek high-value targets throughout the quarter, numerous bigger companies took advantage of attractive valuations to finance huge deals
- Structured deals, which include spin-offs, separation, and carve-out transactions, also drove volumes
- While macroeconomic conditions and geopolitical tensions remain challenging, recent gains in the financial markets and positive signals about interest rates from central banks revived investor confidence
- Spotlight on divestitures of non-core assets as businesses attempted to strengthen their balance sheets and make their business models more resilient
- The focus seems to be shifting to long-term planning and M&A as a way of addressing strategic issues in the sector like market access, economies of scale, and technology debt as inflation and interest rates come under control, leading to a return of investor confidence and stability to banking markets
