Large listings like Reddit's IPO earlier in 2024 have raised hopes for a wider industry rebound.
Senior managers across investment banks and advisory firms expect sector revenues to rise in 2024 as pent-up M&A and initial public offering pipelines are finally unlocked.
The share of dealmakers projecting an increase in revenues from M&A advisory and debt and equity capital markets underwriting surged to 77% in early 2024 versus only 27% a year ago, a survey by Acuity Knowledge Partners released June 7 shows. The main reasons for the heightened optimism are expectations for better economic environment, a gradual return of private equity players and rate cuts later in 2024, according to respondents from 45 sector firms polled in January and February.
"There now seems to be light at the end of the tunnel. Our survey indicates that investment banks and advisory firms trust that the time of uncertainty is almost over," said Anish Ailawadi, global head of investment banking at Acuity Knowledge Partners, in the report.
The survey reflects sentiment across the leading global investment banks that guided for a recovery in M&A and capital markets revenues in full year 2024 after booking higher first-quarter revenues than a year ago.
M&A revival
M&A advisory revenues, which were hit hardest amid a dearth of activity in the last two years, are expected to drive the recovery in 2024 due to an increased appetite for deals from private equity firms and also corporate teams, according to most survey respondents.
Private equity firms, which pulled out from the markets during the rapid monetary tightening in the last two years, are now expected to gradually return as "a record high level of [$1.9 trillion] of stacked dry powder is ready to be deployed" and "a large inventory of private equity-owned assets also needs to be monetized," Acuity Knowledge Partners said.
Rate cuts in 2024 would apply downward pressure across the yield curve, reducing cost of capital, which would "lead to the creation of more attractive valuations scenarios," the financial advisory firm said.
Nearly two-thirds of respondents expect an uptick in business opportunities as the year progresses and only 4% are more pessimistic about business this year, Acuity Knowledge Partners' data shows.
Although rate expectations have shifted to higher-for-longer since early 2024, the greater visibility of the policy path will support the recovery in M&A and capital markets activity, market observers told S&P Global Market Intelligence. As the European Central Bank made its first cut since 2019 on June 6, the Bank of England and the US Federal Reserve are expected to follow suit later this year.
TMT main revenue driver
Technology, media and telecom (TMT) is seen as the primary sector driving higher deal activity and the recovery in investment banking and advisory revenues, followed by the power, utilities and infrastructure sector, the survey findings show.
"Investors remain attracted to the sector's long-term growth story, its relative resilience amid macro headwinds and the growing integration of technology across multiple sectors such as healthcare, industrials, finance and energy," Acuity Knowledge Partners said. Strategic activity is likely to dominate TMT dealmaking in 2024 with novel technologies like AI, robotics and cloud among the key drivers for M&A there, the firm said.
Total tech M&A deal value in the first three months of 2024 rose to its highest level since the second quarter of 2022 with strategic buyers driving activity, while private equity firms remained on the sidelines, a Market Intelligence analysis show.
IPO activity windows
IPO activity seems set for a rather slow recovery in 2024, with 44% of respondents predicting a marginal increase in activity in 2024, while 25% project stabilization versus the previous year and 19% see a significant increase in activity, the survey findings show.
With the US election in November, the second and third quarter of 2024 are seen as the most active windows for IPO execution, the equity capital markets team of investment bank Jefferies told Acuity Knowledge Partners.
At 296, the number of global IPOs in the first quarter was below the prior-year figure, while the total IPO value of $23.33 billion was closer to the $24.16 billion booked in the first three months of 2023, Market Intelligence data shows. In the second quarter, activity surged in April and eased again in May.
While activity is still nowhere near the highs seen in 2021, "major" listings — including Reddit Inc., ZEEKR Intelligent Technology Holding Ltd. and Rubrik Inc. — are a strong sign of recovery in the US, with Europe and the UK likely to follow suit, said Jonathan Parry, a partner in White & Case's capital markets group in London, in an interview with Market Intelligence.
In terms of headwinds, dealmakers identified geopolitical uncertainty as the No. 1 risk to growth in 2024, followed by valuation mismatches and higher cost of capital, Acuity Knowledge Partners' survey shows.