Citizens’ 2024 M&A outlook report revealed optimism about the environment for dealmaking activity this year, underpinned by solid expectations for the U.S. economy and a pop in enthusiasm, especially among buyers. The annual survey of 400 leaders at U.S. middle-market companies and private equity firms also uncovered trends related to interest in artificial intelligence (AI) assets, international dealmaking and the upcoming U.S. election that provide support for the upbeat forecast.

Mid-market firms are the most optimistic they have been since 2020, with 46% expecting a strong M&A market in 2024. Private equity firms are even more positive, with more than half (52%) seeing strength in the current M&A market, up from just 38% last year. Further, 46% of private equity firms expect higher deal volumes in 2024, compared to just 19% that expect deal flow to decrease.

“A sense of normalcy is returning to the M&A environment. Companies across sectors are looking at their economic prospects and seeing opportunities,” Jason Wallace, head of Citizens M&A Advisory, said. “There is still caution, but that positive economic backdrop will continue to bring activity back to the market.”

Fewer mid-market companies cited operating factors such as commodity prices, interest rates and labor markets as headwinds for 2024 than did so in 2023, and the average economic forecast was significantly more optimistic than it was last year. Forty-six percent of mid-market companies and 50% of private equity firms expect U.S. economic conditions to improve in 2024. Among those who expect an improving economy, 68% are likely to engage in M&A activity this year.

As economic conditions improve, more assets are expected to come to market, contributing to palpable buyer enthusiasm. Of the private equity firms who are seeing higher deal flow in 2024, 79% expect to buy more than they did in 2023, while only 21% expect to sell more. Among mid-market firms, the pool of potential buyers also expanded for the second year in a row.

“The disruptions to M&A in ’22 and ’23 have led to some imbalances. For instance, the sheer amount of private equity capital on the sidelines,” Gavin Slader, head of M&A at Citizens JMP Securities, said. “We are now seeing excitement from buyers, which could be just what the markets need to find balance again.”

Unexpected Factors Support M&A Optimism

In addition to upbeat expectations for the U.S. economy in the year ahead, the survey revealed several unexpected factors that could catalyze dealmaking in 2024. These include:

• Private equity firms look ready to shop, and AI is on the wish list. Of the private equity firms that are seeing higher deal flow in 2024, eight in 10 said they expect to buy more than they did in 2023 and a quarter are looking for AI assets to add to their portfolio.
• International prospects are back on the table. After four years of declining expectations, buyer and seller interest in foreign deal partners are expected to rebound in 2024. Among mid-market companies, 51% of sellers and 44% of buyers said they would consider international deals. Private equity firms’ interest in international investment opportunities increased year over year to 55% from 37%.
• The 2024 U.S. presidential election could be a driver for M&A. Uncertainty regarding the outcome of the upcoming U.S. presidential election could support dealmaking in the first half of the year. Forty-one percent of mid-market companies said the pending election makes them more likely to pursue M&A in 2024, while just 25% said it makes them less likely to pursue a deal.