Citizens M&A Outlook Finds Surging Enthusiasm Supported by Unexpected Factors

Rhea-AI Summary

Citizens Financial Group (CFG) reveals optimism for the M&A market in 2024, supported by strong expectations for the U.S. economy. The annual survey of 400 leaders at U.S. middle-market companies and private equity firms shows that 46% of mid-market firms expect a strong M&A market in 2024, with 46% of PE firms expecting higher deal volumes. The survey also uncovered trends related to interest in AI assets, international dealmaking, and the upcoming U.S. election that support the upbeat forecast.

Insights

Market Research Analyst

The anticipation of an upswing in M&A activity, as reported by the Citizens' 2024 M&A Outlook, is a significant indicator of market confidence and potential shifts in the business landscape. The middle-market segment, often seen as a bellwether for broader economic health, shows a marked increase in optimism. This is particularly relevant considering that middle-market companies contribute substantially to the U.S. GDP and employment. The survey's findings suggest a potential uptick in M&A transactions which could lead to increased liquidity events, realignment of industry sectors and consolidation trends. The rise in private equity firms' intent to engage in more deals, especially in the acquisition of AI assets, underscores a strategic shift towards digital transformation and innovation-driven growth strategies. Moreover, the renewed interest in international deals indicates a globalizing trend in M&A strategies, potentially diversifying revenue streams and market presence for U.S. firms.

Financial Analyst

The M&A Outlook's projection of a more robust M&A market in 2024 has direct implications for investors and stakeholders. A surge in deal-making activity is likely to influence stock valuations, as markets typically react to acquisition news with speculation on synergies and future earnings potential. The report's indication that fewer mid-market companies perceive operating factors like commodity prices and interest rates as headwinds could signal a more favorable environment for corporate financing and investment. For investors, this may translate to a more stable and predictable market, with potential for growth in sectors that align with M&A trends, such as technology and healthcare. The emphasis on AI assets points towards an increasing valuation of tech-driven companies, which could attract more venture capital and private equity investment, driving up valuations and potentially leading to more IPOs or high-profile acquisitions.

Economist

The optimism reflected in the M&A Outlook can be seen as a positive economic indicator, suggesting that business leaders anticipate an environment conducive to growth and investment. The survey's results align with macroeconomic factors such as GDP growth, employment rates and market stability. The expected improvement in the U.S. economy could lead to increased corporate earnings and capital expenditures, fostering a virtuous cycle of investment and consumption. However, the potential impact of the 2024 U.S. election on M&A activity introduces an element of uncertainty. Political outcomes can significantly affect regulatory landscapes, tax policies and cross-border trade agreements, which in turn can alter the M&A environment. Stakeholders should be mindful of the political climate as it may lead to accelerated deal-making in anticipation of regulatory changes or may conversely cause a wait-and-see approach, depending on the perceived stability of the political landscape.

Optimism for an economic and M&A rebound shines through, especially among potential buyers

PROVIDENCE, R.I.--(BUSINESS WIRE)-- Citizens’ 2024 M&A Outlook revealed optimism around 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 notable 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. PE firms are even more positive. More than half (52%) see strength in the current M&A market, up from just 38% last year. Further, 46% of PE 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,” said Jason Wallace, head of Citizens M&A Advisory. “There is still caution, but that positive economic backdrop will continue to bring activity back to the market.”

Fewer mid-market companies cite 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 is significantly more optimistic than it was last year. Forty-six percent of mid-market companies and 50% of PE 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 PE firms who see 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,” said Gavin Slader, head of M&A at Citizens JMP Securities. “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:

• PE Firms look ready to shop, and AI is on the wish list. Of the PE firms that see higher deal flow in 2024, eight in 10 say 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 rebounded in 2024. Among mid-market companies, 51% of sellers and 44% of buyers say they would consider international deals. PE firms’ interest in international investment opportunities increased year-over-year to 55% from 37%.

• The 2024 U.S. election could be a driver for M&A. Uncertainty regarding the outcome of the upcoming U.S. election could support dealmaking in the first half of the year. Forty-one percent of mid-market companies say the pending election makes them more likely to pursue M&A in 2024, while just 25% say it makes them less likely to pursue a deal.

The survey was conducted among U.S.-based middle-market businesses ($50 million to $1 billion in revenue), as well as PE firms (fund size less than $1.5 billion) that are active in the acquisition and sale of U.S.-based companies in the same revenue range. Core business sectors included Citizens’ industry specialties of aerospace, defense and government services; business services; consumer; gaming, lodging and commercial real estate; healthcare; industrials; technology, media and telecommunications; and transportation and logistics, as well as other industries.

Business executives at 277 middle-market firms and 123 PE firms who are directly involved in decision-making related to M&A (owners/partners, CEOs, presidents and other C-level executives and directors) completed a phone or web-based survey between November and December 2023.

For more information on this year’s Citizens Middle Market M&A Outlook, please go to www.citizensbank.com/maoutlook. To register for a Jan. 25 webinar on the report, please go here.

Citizens M&A Advisory specializes in middle market mergers and acquisitions. Citizens combines sector intelligence with a client-focused approach to realize our clients' true value. The Citizens team has more than 100 M&A professionals specializing in a range of industries across the United States. Citizens M&A Advisory is part of Citizens JMP Securities, LLC, a subsidiary of Citizens Financial Group (NYSE: CFG). For more information, please visit the Citizens website.

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation’s oldest and largest financial institutions, with $225.3 billion in assets as of September 30, 2023. Headquartered in Providence, Rhode Island, Citizens offers a broad range of retail and commercial banking products and services to individuals, small businesses, middle-market companies, large corporations and institutions. Citizens helps its customers reach their potential by listening to them and by understanding their needs in order to offer tailored advice, ideas and solutions. In Consumer Banking, Citizens provides an integrated experience that includes mobile and online banking, a full-service customer contact center and the convenience of approximately 3,300 ATMs and approximately 1,100 branches in 14 states and the District of Columbia. Consumer Banking products and services include a full range of banking, lending, savings, wealth management and small business offerings. In Commercial Banking, Citizens offers a broad complement of financial products and solutions, including lending and leasing, deposit and treasury management services, foreign exchange, interest rate and commodity risk management solutions, as well as loan syndication, corporate finance, merger and acquisition, and debt and equity capital markets capabilities. More information is available at www.citizensbank.com or visit us on Twitter, LinkedIn or Facebook.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240110058598/en/

Frank Quaratiello

617.543.5810

frank.quaratiello@citizensbank.com

Source: Citizens Financial Group, Inc.

FAQ

What is the Citizens Financial Group's outlook for the M&A market in 2024?

Citizens Financial Group reveals optimism for the M&A market in 2024, supported by strong expectations for the U.S. economy.

What percentage of mid-market firms expect a strong M&A market in 2024?

46% of mid-market firms expect a strong M&A market in 2024.

What percentage of PE firms expect higher deal volumes in 2024?

46% of PE firms expect higher deal volumes in 2024.

What are the notable trends uncovered by the annual survey of 400 leaders at U.S. middle-market companies and private equity firms?

The survey uncovered trends related to interest in AI assets, international dealmaking, and the upcoming U.S. election that support the upbeat forecast.

What are the unexpected factors that could catalyze dealmaking in 2024?

The unexpected factors include PE firms looking to buy more than they did in 2023, interest in AI assets, rebounded international prospects, and the potential impact of the 2024 U.S. election on dealmaking.