There are high expectations for M&A activity in 2024, and this year’s performance has started strong—global M&A volume totaled $481.8 billion, up 59% year-over-year as of February 26, 2024.
Research from our 2024 M&A outlook affirms this optimism, with almost 70% of the 350+ bankers we surveyed anticipating a more bullish M&A market this year.
To dive deeper into these findings, we spoke with Bill Rich, a Managing Director at the growth tech investment bank Bowen, to discuss:
- His perspective on the market
- Factors driving M&A activity this year
- Strategies for using relationships and artificial intelligence (AI) to win more transactions
Watch the full conversation or keep reading for the highlights, marked with timestamps so you can hone in on key moments.
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2023 was a year of tighter market conditions
Despite macroeconomic uncertainty and higher borrowing costs, Rich notes that 2023 was a record year for his firm—which is more immune to rising interest rates since they work with companies that aren’t highly-levered.
Reflecting on 2023, Rich highlights two key trends.
1. Multiples compressed
Rich and his team observed M&A multiples—like enterprise value (EV) to revenue and EV to annual recurring revenue—compress. However, he emphasizes that by any long-term measure, multiples remained robust and in line with levels in 2020 and early 2021.
As a result, numerous sellers held off coming to market, opting to wait until valuations normalize: “There are certainly sellers that were on the sidelines in 2023 waiting for valuations to return, but overall it was a pretty robust market. Our sense is that buyers remain interested in being active in the marketplace.”
2. There was a flight to quality
Of the buyers that transacted in 2023, Rich notes they were focused on quality and willing to pay for it. For instance, he saw several transactions where strategic buyers paid significant sized multiples for companies they believe are crucial to their long-term growth.
He says, “Our experience was, and is, that buyers are actively looking for quality companies. We think of quality in this marketplace as positive revenue growth and profitability, or near-term sight-line to profitability.”
Four factors driving M&A activity in 2024
Looking ahead, Rich expects a variety of factors to drive transactions—from potential interest rate cuts to the increasing attractiveness of public markets.
1. Potential interest rate cuts
Top of mind for most firms is the likelihood of central bank interest rate cuts this year, as rate cuts typically result in lower borrowing costs and greater financing activity. However, with lingering volatility in employment and inflation data, Rich anticipates rate cuts may begin later than expected and even in 2025 instead—especially given signals from the Federal Reserve that they’re hesitant to cut interest rates too soon.
2. Ample dry powder and increased urgency from Private Equity
Research from our 2024 M&A outlook shows that 51% of bankers believe companies will pursue M&A this year to deploy excess capital and strategically drive business growth. Rich also expects Private Equity (PE) buyers will become more aggressive in deploying capital this year, noting that many completed few or even zero transactions in 2023.
He says, “Our sense is that PE buyers—especially the lower-middle market firms that we tend to work with—are going to get a lot more aggressive in deploying capital in 2024, even if that means putting more equity in per transaction. Because Private Equity firms are money managers, and they make money by deploying money.”
3. Convergence of valuation expectations
Another factor Rich expects to drive M&A activity this year is that sellers are slowly adjusting to new valuation environments, especially in the technology space. He notes, “Rising public company valuations underpin technology M&A, so we think those rising valuations are helpful. Buyers tend to pay somewhere around what they’re valued at on a multiples basis. So when valuations go up, it helps everything.”
4. Diminishing incentives to stay private
Lastly, it’s becoming less enticing for companies to remain private. Given valuations have come down and venture funding is becoming harder to attain, Rich anticipates more technology sellers will come to market in 2024.
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Strong relationships drive deal flow
With an expected uptick in deal volume, firms can lay the groundwork to win more mandates by prioritizing their networks. According to our research, 58% of investment banks expect over half of their deals will come from their firm’s collective network this year.
But having a strong network isn’t just important in finding the right deals—it’s crucial to winning them. To clients and prospective clients, your firm’s network is a selling point.
Rich says, “When you go to pitch a new client, the first thing a board member or CEO wants to know is how well do you know the buyers? So having those relationships and being able to manage them is important to completing transactions and winning mandates. We don’t ever see that changing, and creating an ever-growing network really feeds our business.”
A 360° approach to winning mandates
Rich recommends building relationships with both the C-suite of a company and all of the key stakeholders surrounding them, which is a process that can play out over several quarters to several years. This way, when the company is ready to transact, they will already know and trust your team.
“The first point of contact with a new company is the CEO, sometimes the CFO. But in order to really be good at what you do and really win the mandate, you have to do a surround. So we want to be in touch with and know the board members and other relevant stakeholders and influencers. Really, when you go to win a mandate, everybody who has a stake in it needs to want to hire a specific bank. So it's important to know all the people and have a relationship with them.”
AI is also starting to impact how investment banks find and win mandates. Longer term, Rich sees AI’s potential to:
- Improve prospect targeting and messaging
- Identify high-quality buyers who are more likely to transact
- Help bankers better understand the executives in target companies who are more receptive to opportunities
Use relationship intelligence to win deals faster
This is where Affinity comes in. By automating contact creation, centralizing relationship and deal insights, and providing detailed engagement histories, Affinity can give your firm a competitive edge—especially when it comes to prospecting.
Rich notes that “Affinity is also quite important for us in terms of building our target list and managing outreach…Having one place where our deal teams can find the right people and know who we've talked to, and importantly, who's responsive and who's not, tends to drive our business faster.”
For instance, Affinity uses relationship intelligence to look across your organization’s shared network and identify which person in your company is best suited to make an introduction, helping you close deals 25% faster.
“Affinity is our CRM and deal database. It's where we look for touchpoints and contact data. It's also where we track those touchpoints,” Rich says.
To learn more about the drivers of M&A activity this year and strategies for using relationships and AI to win more deals in 2024, watch the full webinar.
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