As we enter 2024, we explore some of the predictions for this year.
Inflation, high interest rates and geopolitical instability have influenced market momentum, which has in turn encouraged a highly intentional, risk-averse approach to business growth.
Businesses remain dedicated to aggressive development especially in the wake of the AI boom that is said to ramp up even more this year. However, in the effort to mitigate as much risk as possible, Mergers and Acquisitions will take center stage in 2024.
Encompassing this lean and laser-sharp approach to expansion, businesses with the following characteristics are poised to be the most sought after for companies looking to expand.
- Mid-market
Since 2020, there has been a drop in deals over $1 billion and this trend is predicted to continue in 2024. Companies are seeking to add smaller, mid-market acquisitions that offer less financing risk, and smoother transactional processes.
- Focus on sustainable energy (ESG)
Companies who have integrated an authentic shift towards clean energy have an advantage as focus continues to grow on global clean energy practices, especially considering the tax benefits available for those pushing for the transition to clean energy.
- Private Equity Firms
Over the last three years, Private Equity firms have been a catalyst in M&A transactions and this trend is predicted to continue next year.
The very nature of private equities lends itself perfectly to the growing preference for creative partnering and funding as investors strive to minimize and share risk. Private equity provides significant amounts of funding towards M&A transactions, and in fact, were a leading force in almost 60% of tech-related mergers in 2023.
With access to diverse portfolios, private equity firms can be instrumental in identifying opportunities for successful M&As. In addition, private equity firms provide expertise in strategizing for optimal market placement that enhances profitability, using financial expertise to efficiently assign resources for optimal growth.
Notable Regulatory Focus on Private and Large Investment Opportunities
As the number of private equity investment opportunities continue to grow, so has scrutiny by regulatory bodies. In 2023, the industry saw new rules and regulations targeting private funds. Many practitioners in the sector have said that the number of regulations now governing this space is in direct contrast to the very core of the industry.
Many regulations targeting private funds were introduced in 2023, including mandatory issuance of quarterly financial statements, more reporting requirements on illiquid funds, mandatory annual audits, restrictions on the use of ‘Side letters’, and more.
In relation to mergers and acquisitions, firms who complete a merger above $20 million dollars must inform the government of the deal. Notably, there also are new proposals expected to become effective in the near-term that will require firms to include additional information on the deal such as:
- Relationship between parties
- How the transaction will affect other key players
- Information on prior acquisitions
- Main investors and creditors
If seeking an M&A opportunity, it is important to keep these trends in mind. If you elect to explore private equity as an option, we encourage you to conduct careful due diligence about the firm’s experience, track record and reputation. It is also important in these deals to retain legal counsel experienced in M&A transactions, as well as regulatory compliance matters, particularly if you are in the financial industry space.
The legal team at Jacko Law Group provides M&A and regulatory compliance and corporate counsel for businesses in the finance sector and beyond. If you would like to speak to a member of our team, please call 619.298.2880 or contact us at info@jackolg.com.