Grant Thornton survey: M&A professionals predict a rise in deal volume

— 67% expect an increase in deal volume

— 60% identified technology, media, entertainment and telecommunications as the top industries for M&A activity

— 34% expect a more constrained lending environment

— 40% are holding back on deals until after the U.S. election

CHICAGO —A new survey from Grant Thornton, one of America’s largest brands of professionals providing end-to-end audit, assurance, tax, and advisory services, shows that professionals in the mergers and acquisitions (M&A) space are predicting an increase in deal volume, even with the uncertainty of the looming U.S. presidential election.

The survey, which polled 255 M&A professionals, found predictions of a rise in deal volume over the next 6 months, according to 67% of respondents. Despite high interest rates, M&A professionals said several factors are leading to their predictions of stronger deal activity in the later stages of this year.

Survey respondents said a hunger for technology enhancements is fueling some deals. Sixty percent identified technology, media, entertainment and telecommunications as one of the top industries for M&A activity over the next six months ― while healthcare and energy ranked a distant second and third in the results, at 34% and 31% respectively.

Meanwhile, the survey findings indicated that private equity (PE) firms plan to get in on the action. Many PE firms have been holding cash for a while in hopes of getting better deals, but there may be some instances where firms need to return capital to investors if they don’t make a deal soon. At the same time, PE firms that have been holding on to portfolio companies for an extended time are finding they need to sell to provide investors a return on their capital.

Although 77% of PE respondents in the survey were somewhat or very optimistic about how their portfolio companies will perform over the next 12 months, 54% of PE and corporate respondents are holding assets longer. Vic Sandhu, a managing director of Transaction Advisory services at Grant Thornton Advisors LLC, said investors can get restless when assets are held for longer periods.

“Buyers are going to find opportunities where valuations might be a little depressed in some subsectors, but in others, valuations are going to increase,” Sandhu said. “This makes sense given the nature of productivity changes in some sectors and the growth profiles of certain sectors.”

Yet as the survey illustrated, financing continues to be a challenge. 

Financing remains precarious

The survey results demonstrated how high interest rates have rocked the M&A environment. Thanks to constraints on the lending environment, respondents have executed fewer deals, increased the equity component in financings and explored alternative financing plans.

Those who are exploring alternative financing are turning to preferred equity and debt structures (85%) as well as investment from specialized private funds (55%).

Tom Libeg, a principal of Transaction Advisory services at Grant Thornton Advisors LLC, said bankers are spending a lot more time thinking of creative solutions to finance transactions.

“I’ve definitely seen more deals where firms are working together and looking for alternative structures to get a deal done,” Libeg said. “And then they’ll consider different recapitalization options down the line.”

Interestingly, M&A professionals are split on whether lending pressures will ease soon, even though interest rates are widely expected to fall. More than one-third (34%) of respondents said they expect a more constrained lending environment over the next 12 months, while 40% expect lending to be less constrained.

Sandhu predicted that if interest rates fall precipitously, transaction volume will accelerate rapidly. But if rates don’t change much, he said there will be a long-term recovery in M&A.

“When buyers see premium assets, they want to move quickly to get their service providers engaged and differentiate their bid based on speed and certainty to close,” said Kosta Kourakis, a principal of Transaction Advisory services at Grant Thornton Advisors LLC. “As the market continues to heat up and more deals come into play, the ability to move quickly will definitely be a differentiator.”

M&A professionals view election cautiously

Although M&A professionals are confident that deal volume will increase in the next six months, 40% said they’re hitting the pause button on deals until after the U.S. presidential election in November.

About half of the survey respondents said the election will have no effect on their deal activities, and 10% said they are speeding up their M&A processes to close before the election.

According to Sandhu, buy-side and sell-side professionals whose businesses are especially sensitive to regulation and market uncertainty tend to be the ones who are pausing deal activity.

“If dealmakers don’t have the stickiness in their business that can weather economic distress, it makes sense for them to hold off until after the election,” Sandhu said. “They may be able to make more informed M&A decisions once the political landscape becomes clearer, and the stability can potentially lead to better deal outcomes.”

The respondents also ranked four factors that may be affected by the election in order of their impact on the M&A environment. Nearly half (49%) said the election’s effects on the overall economy would have the largest impact on M&A, while 25% cited the election’s effects on regulatory policy and 21% saw tax policy as being affected the most. The election’s impact on trade policy was ranked as less important in the M&A environment.

The survey was fielded in July, before Joe Biden relinquished his presidential bid and Kamala Harris became the presumptive Democratic nominee in the race against Republican Donald Trump.

To see additional findings from Grant Thornton’s latest M&A survey, visit www.grantthornton.com/insights/survey-reports/advisory/2024/ma-professional-view-election-cautiously.