M&A Market Trends: Understanding Deal Cycles, Valuations, and What Drives Activity

M&A activity doesn't move in straight lines. It surges and contracts based on forces that are somewhat predictable.

In 2021, global M&A hit record levels—over $5 trillion in announced deals. In 2022 and 2023, activity dropped significantly as interest rates rose and markets recalibrated.

Understanding these cycles matters for career planning, deal timing, and market context. When you know what drives M&A, you can anticipate shifts rather than be surprised by them.

Here's how M&A cycles work, what's driving current trends, and how to think about where markets are heading.

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The M&A Cycle

What Drives Activity

M&A activity responds to several factors:

1. Credit Availability

Financing is the fuel for M&A. When credit is cheap and available, deal activity surges. When credit tightens, activity slows.

Credit Environment	M&A Impact
Low rates, loose conditions	Strong activity, higher valuations
Rising rates, tightening	Activity slows, valuations moderate
Credit crisis	Activity collapses
Recovery	Gradual rebound

2. Equity Markets

Strong equity markets support M&A:

• Higher stock prices enable stock-based acquisitions
• Seller expectations rise with market valuations
• CEO confidence increases

Weak equity markets constrain M&A:

• Stock currency is less attractive
• Valuation gaps between buyers and sellers
• Risk aversion increases

3. CEO and Board Confidence

M&A is discretionary. Confident executives pursue strategic deals. Uncertain times lead to defensive postures.

4. Regulatory Environment

Antitrust enforcement affects M&A calculus:

• Aggressive enforcement: Longer timelines, higher deal risk
• Permissive enforcement: Faster approvals, more mega-deals

5. Strategic Imperatives

Industry dynamics create M&A pressure:

• Technology disruption
• Consolidation for scale
• Geographic expansion
• Product line extension

The Typical Cycle

Phase 1: Recovery After a downturn, activity rebuilds gradually. Opportunistic deals by strong buyers.

Phase 2: Expansion Credit loosens. Valuations rise. Deal volume increases. PE activity accelerates.

Phase 3: Peak Record activity. High valuations. Competitive auctions. Tight financing spreads.

Phase 4: Correction Trigger event (rate hikes, market shock). Activity slows sharply. Valuation gaps emerge.

Phase 5: Trough Low activity. Distressed deals. Restructuring increases. Patient buyers wait.

The cycle length varies—typically 5-10 years from peak to peak.

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Current Market Context

Where We Are (2024)

Recovery from 2022-2023 slowdown: Activity in 2024 is rebuilding after the sharp decline from 2021 peaks. Rate stability is helping.

Key factors:

• Interest rates elevated but stabilizing
• Equity markets recovered
• PE firms sitting on dry powder
• Sponsor-to-sponsor deals active
• Strategic activity returning

What's Driving Activity

Private equity:

• $2T+ in undeployed capital
• Pressure to invest
• Sponsor-to-sponsor exits
• Take-privates when valuations allow

Technology:

• AI driving strategic acquisitions
• Platform consolidation
• Cross-border tech deals

Healthcare:

• Pharma M&A for pipeline replenishment
• Healthcare services consolidation
• Biotech acquisitions

Energy transition:

• Clean energy deals
• Traditional energy consolidation
• Infrastructure investment

What's Constraining Activity

Regulatory scrutiny:

• Aggressive antitrust enforcement in US and EU
• Longer approval timelines
• Increased deal risk

Valuation gaps:

• Seller expectations anchored to 2021
• Buyer discipline on price
• Gaps slow negotiations

Financing costs:

• Higher interest rates increase deal costs
• Leveraged buyouts pencil differently
• Some deals don't work at current rates

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Valuation Trends

What Multiples Show

EV/EBITDA by sector (illustrative):

Sector	2021 Peak	2023 Trough	Current
Technology	15-20x	10-14x	12-16x
Healthcare	12-15x	9-12x	10-13x
Consumer	10-12x	8-10x	9-11x
Industrial	9-11x	7-9x	8-10x

Multiples have compressed from peaks but remain above historical averages.

What Drives Valuations

Growth expectations: Higher growth commands higher multiples.

Interest rates: Lower rates support higher valuations (lower discount rates).

Competitive dynamics: Multiple bidders push prices higher.

Strategic value: Synergies can justify premiums above financial value.

Quality factors: Recurring revenue, market position, and margin profile affect multiples.

The Valuation Gap Problem

Why deals stall:

• Sellers expect 2021 prices
• Buyers underwrite to current rates
• Gap prevents agreement

How gaps close:

• Time adjusts expectations
• Earnouts bridge differences
• Seller financing provides flexibility
• Strong strategic rationale justifies premium

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Deal Type Trends

Strategic vs. Financial Buyers

Strategic buyers: Corporations acquiring for operational reasons. Can pay more due to synergies.

Financial buyers: PE firms acquiring for returns. Constrained by financing and return requirements.

Current dynamics: Strategics gaining share as financing costs favor cash-rich corporates.

Public vs. Private Targets

Take-privates: PE acquiring public companies. Active when public market valuations lag private.

Private M&A: Sponsor-to-sponsor deals. Corporate acquisitions of PE-backed companies.

Current dynamics: Sponsor exits are active as PE seeks to return capital to LPs.

Cross-Border M&A

Trends:

• US companies acquiring in Europe and Asia
• Some foreign buyers in US (with regulatory scrutiny)
• Regional deal-making in emerging markets

Challenges:

• Geopolitical tension affecting China-US deals
• Regulatory nationalism
• Currency considerations

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Sector Perspectives

Technology

Themes:

• AI acquisitions at premium valuations
• Cloud and SaaS consolidation
• Cybersecurity platform building
• Software infrastructure deals

Dynamics: Tech multiples remain elevated for quality assets. AI premium is significant.

Healthcare

Themes:

• Big Pharma buying biotech for pipelines
• Healthcare services consolidation
• Digital health acquisitions
• Medical device roll-ups

Dynamics: Patent cliff pressure drives pharma M&A. Weight-loss drug opportunity reshaping landscape.

Financial Services

Themes:

• Bank consolidation
• Insurance M&A
• Wealth management platform building
• Fintech acquisitions and consolidation

Dynamics: Regulatory constraints limit bank M&A scale. Wealth management very active.

Energy and Infrastructure

Themes:

• Traditional energy consolidation
• Clean energy acquisitions
• Infrastructure investment
• Power generation deals

Dynamics: Energy transition creating M&A activity on both sides—fossil and renewable.

Consumer and Retail

Themes:

• E-commerce evolution
• Brand portfolio optimization
• Grocery and food consolidation
• Restaurant and hospitality deals

Dynamics: Consumer behavior shifts driving strategic repositioning.

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Private Equity Dynamics

The Dry Powder Overhang

$2T+ undeployed: PE firms have record amounts of capital waiting to be invested. This creates:

• Pressure to deploy
• Competition for assets
• Support for valuations
• Innovation in deal structures

Exit Environment

The challenge: PE firms need to sell portfolio companies to return capital to LPs. Exit routes include:

• Sale to strategic buyers
• Sale to other PE firms (sponsor-to-sponsor)
• IPO (limited in current environment)
• Dividend recaps

Current dynamics: Sponsor-to-sponsor deals are active as IPO window remains challenging.

Fundraising

LP appetite: LPs are committed to PE but selective about new commitments. Top-quartile managers succeed; others struggle.

Impact on M&A: Fundraising pressure eventually drives deployment pressure. The capital will need to be invested.

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Looking Ahead

What to Watch

Interest rates: Rate cuts would accelerate M&A. Continued elevation would constrain.

Regulatory environment: Election outcomes may shift antitrust enforcement approach.

Private equity deployment: Dry powder must be deployed. Timing and approach will drive activity.

Valuation gap resolution: As expectations adjust, more deals will transact.

Likely Trends

Continued recovery: M&A activity likely continues rebuilding from 2022-2023 lows.

Sector concentration: Technology, healthcare, and energy transition will remain active.

PE activity: Sponsor-to-sponsor deals and take-privates will be significant.

Regulatory caution: Mega-deals will face scrutiny. Parties will be selective about what to pursue.

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Career Implications

What Market Conditions Mean

Hot M&A market:

• Busy deal teams
• Strong bonuses
• More exits to buy-side
• Competition for talent

Slow M&A market:

• Less deal activity
• Compensation pressure
• Fewer immediate exits
• More restructuring work

Navigating Cycles

In hot markets:

• Build relationships and track record
• Capture value while available
• Prepare for eventual downturn

In slow markets:

• Develop skills (restructuring, DCM)
• Build relationships for recovery
• Position for opportunities when activity returns

Long-Term Perspective

M&A is cyclical but persistent. Cycles create different opportunities:

• Bull markets favor aggressive career moves
• Bear markets favor skill development and patience
• The best careers span multiple cycles

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Key Takeaways

M&A activity moves in cycles driven by credit conditions, market sentiment, and strategic imperatives.

What drives M&A:

• Credit availability
• Equity market performance
• CEO confidence
• Regulatory environment
• Industry dynamics

Current state:

• Recovery from 2022-2023 slowdown
• PE dry powder supporting activity
• Regulatory scrutiny constraining mega-deals
• Valuation gaps slowly closing

Key trends:

• Technology and AI deals at premium
• Healthcare M&A for pipeline
• Energy transition activity
• Sponsor-to-sponsor exits

Career implications:

• Market conditions affect opportunity and compensation
• Cycles require different strategies
• Long-term perspective essential

Understanding M&A cycles helps you anticipate market shifts, position for opportunities, and navigate the inevitable ups and downs of a career in finance.

The market will cycle. The question is whether you're prepared for what comes next.