‘The time is ripe’ for deals, Deloitte survey reveals
Corporate leaders in mergers and acquisitions are optimistic about the outlook for dealmaking in 2025 despite current economic challenges and pressures.
The latest edition of Deloitte's M&A survey has revealed that corporate M&A leaders believe "the time is ripe for deal-making into 2025 to pursue growth and deliver value for shareholders.”
Deloitte national M&A leader Ian Turner said that after a choppy 12 months for M&A leaders, Deloitte's 2024 survey paints a surprisingly bullish picture.
"Last year, they remained positive. That optimism has certainly carried over into 2024," Turner said.
“The top of the interest rate cycle means more normality in the industry, and this creates confidence. And while even the most optimistic M&A leader would stop short of predicting a dramatic surge in deals, there are strong signs activity will soon pick up.”
The Deal in Focus: Heads of M&A Survey 2024 indicated that 76 per cent of M&A leaders believe the current economic conditions will support deal activity – an increase from 66 per cent in 2023.
Over half (53 per cent) also expect more deals in the next year, up from 45 per cent last year.
In terms of funding for deals, around eight in 10 M&A leaders plan to leverage excess cash and operating cash flows.
The survey revealed that the majority of respondents were interested in acquisitions to drive core business growth at 79 per cent, followed by partnerships or alliances (47 per cent) and divestitures of non-core assets (33 per cent).
M&A deals are also increasingly being seen as a strategy for achieving net-zero or decarbonisation commitments.
Deloitte M&A program leader, Jamie Irving, said that nearly a third of the survey respondents consider M&A a lever to achieve net zero or decarbonisation commitments.
"Many have made acquisitions or pursued divestments to benefit from the energy transition or reduce exposure to fossil fuel-related industries," Irving said.
“ESG remains important in due diligence, but quantifying its impact and integrating it into valuation models clearly remains a challenge.”
The report also revealed that valuation continues to be the biggest challenge for M&A leaders.
“The valuation gap is proving stubborn, and a lack of available targets is hampering deal activity, so it’s not surprising to see defensive M&A strategies front of mind in 2024,” Irving said.
“The gap between buyers and sellers continues to disrupt M&A, with asset valuations ranked high as a challenge to deal success.”
To overcome this, Irving said sell-side companies will need to have a deep understanding of a buyer’s universe and be able to identify those willing to pay the most for their targets.
"This includes offshore buyers, who may have unique motivations to pursue cross-border M&A in Australia," he said.
“Buyers on the other hand need to be very clear on why and how they pursue a deal, including the strategic and cultural fit, the return profile, potential synergies, ESG considerations and macroeconomic variables.”
Irving said the outlook for M&A remains resilient despite challenges around valuations.
“Businesses have been understandably cautious, maintaining a holding pattern in tough external conditions. But as valuation challenges ease, there’s reason to shift into realistic optimism and be ready to move early on the right deal," said.
"Cheaper capital will motivate both buyers and sellers to pursue more deals. And we expect AI-fuelled M&A and the influence of activist investors to play increasing roles."
