M&A Market Monitor – January 2025

ArkMalibu Market Monitor, Year in Review 2024

We invite you to read our M&A market analysis containing M&A trends and data for numerous industries. Please feel free to contact us at (513) 583-5413 to discuss how the information presented in each report may relate to your business and its own unique set of value drivers.

U.S. & Canada M&A Overview

Deal activity plateaued as macroeconomic headwinds and uncertainty lingered

• 2024 saw overall M&A deal count decline 3.4% compared to 2023, as market uncertainty in an election year affected deal volume contributed to a more cautious environment; however, private equity deal volume rebounded with a 13% increase YoY, driven by smaller, bolt-on acquisitions
  • 16,293 deals were completed in 2024, as deal count declined for the fourth year in a row but remained 7.6% above the 2015-2019 average of 15,141
  • 2024’s median Enterprise Value/EBITDA multiple held constant from the prior year at 11.1x
  • Notably, the total reported transaction value in 2024 of $1.6T was up 37% YoY, fueled by 30 acquisitions exceeding $10B in value that added a cumulative $578B to the total reported transaction value
• Investors stayed selective in choosing deals, as the reality of higher interest rates placed a premium on safer assets with concrete value creation; interest rates dipped enough to provide a boost to PE activity, while strategic activity stalled
  • Private equity investment picked up steam in 2024, although bolt-on acquisitions remained more prevalent than platform deals; the median PE hold period decreased to 5.9 years in 2024 as PE exits ended a two-year slump
  • LBO financing saw commercial banks begin to re-enter the lending market, with annual syndicated LBO loan volumes doubling from a low mark of $30.7B in 2023; refinancing has played a pivotal role in the market, as it accounted for nearly two-thirds of all broadly syndicated loans (BSL) in 2024
• Looking ahead to 2025, sentiment is improving for the M&A market, as dealmakers have hopeful expectations that lower inflation, regulatory easing, and recovering valuations will fuel a comeback in the transactions market

Global M&A Overview

• Globally, 2024 deal count remained relatively flat compared to 2023 at 41,678 deals, a 0.5% YoY increase; however, capital invested through M&A increased 36.4% over the same period to $2.9T, while the median Enterprise Value/EBITDA multiple held at 9.6x
  • The significant rise in capital invested mirrors M&A activity in the U.S. and Canada, indicating a preference by larger companies to deploy cash reserves for stronger assets with higher valuations; this is reflected in the increase of median deal size, which grew 49.1% in 2024 to $30.2M

U.S. & Canada M&A Overview by Segment

Strategics

• In 2024, 7,807 acquisitions were made by strategic acquirers in the U.S. & Canada, a 1% decrease YoY
  • Industry groups with strong performances in deal count were led by Construction (Non-Wood) (86%), Commercial Banks (51%), and Agriculture (43%)
  • Conversely, the most notable declines in deal count were observed in Semiconductors (-36%), Apparel and Accessories (-21%), and Utilities (-19%)

Private Equity

• PE firms put an end to a two-year decline in exit activity, with PE exits improving by 16.6% YoY in 2024
• •  The median PE hold period decreased from 7.0 years in 2023 to 5.9 years in 2024, but remains well above the 2021 median hold period of 4.8 years
  • PE IPO exits saw increases in both count and exit value, with 16 IPO exits in 2024 for a total value of $40.6B, compared to 14 IPO exits for a total value of $8.0B in 2023; Viking River Cruises topped the list of notable PE IPO exits in 2024, priced at an initial valuation nearing $11B
    • 2025 IPO exit activity is expected to receive tailwinds from strong public markets and a growing pipeline of PE-backed companies seeking to go public
•  PE acquisition deal count improved 12.7% in 2024 to 8,473, while deal value also increased 18.8% buoyed by the resurgence of transactions greater than $1B in value
  • As a percentage of all PE buyouts, add-ons represented 74.1% of buyout activity, a decline of 1.2 percentage points from the prior year, but still above the five-year average of 73.5% as PE investors prioritized multiple arbitrage, consolidation, and operational synergies
    • With lower interest rates on the horizon, overall PE deal activity will likely increase with the boost benefitting platform buyouts and reducing the relative share of add-on transactions
  • Valuations paid by PE firms turned a corner in 2024, as the median Enterprise Value/EBITDA multiple for US deals reached 12.7x, a 6.7% increase YoY
    • Median revenue multiple growth lagged behind EBITDA multiples, declining 5% to 2.0x
    • We expect the increase in buyside demand to be matched with an increase in the supply of M&A sales as 35% of the 11,800 PE-backed companies in the US have been held for 5 years or more

Venture Capital

• 2024 deal activity and deal value in U.S. venture surpassed both pre-pandemic and 2023 totals, increasing 4% YoY
  • 2024’s deal value growth was driven by an increase in outsized deals, skewed by top performers and artificial intelligence companies; 43% of the $74.6B in Q4 2024 deal value is represented by the 5 largest deals – Databricks, OpenAI, xAI, Waymo, and Anthropic; VC-backed artificial intelligence companies captured 46% of 2024’s deal value
  • Q4 2024 deal activity improved at nearly all stages, with pre-seed/seed and early-stage deal count reaching 2024 highs and late stage deals posting a quarterly gain after two consecutive declines
  • Exit activity in venture capital received some momentum in 2024, with exit value up 24.3% and exit count up 10% YoY, though this increase in activity came from more frequent, smaller deals; there were 40 exits that exceeded the $500M size threshold in 2024, compared to 2021’s peak of 220 exits

U.S. Equity Market Overview

• Major publicly traded stock indexes closed 2024 posting double digit returns, including the S&P 500 which registered its best two-year performance in over 25 years at a 23.8% average annual return
  • The Magnificent Seven (Microsoft, Amazon, Meta Platforms, Apple, Alphabet, Nvidia, Tesla) bolstered the S&P 500 with 67% YoY returns in 2024
  • Large-cap growth stocks as represented by the Russell 1000 Growth Index grew 33% YoY, meaningfully outperforming large-cap value, small-cap value, and small-cap growth stocks
• Ten out of eleven S&P 500 sectors finished 2024 with positive gains, with top performing sectors led by Communications (40%), Technology (37%), and Financials (31%)
  • Small-cap sector performance was led by Technology (24%), Staples (21%), and Communications (19%), while Energy (-6%) was the only sector with negative performance
  • Post-election, small-cap stocks received a temporary lift on optimism for less regulation and higher tariffs, but faded to end the year
• Q4 2024 earnings for S&P 500 companies are expected to come in 12.5% higher YoY per consensus estimates which would represent the highest YoY rate since Q4 2021
  • The S&P 500 forward 12-month P/E ratio is 21.6x, which represents an 18.7% premium over the 10-year average of 18.2x
• The IPO market recovered in 2024, with US IPO count increasing by 28% and proceeds rising by 48%, led by the healthcare and TMT sectors
  • Average gains for IPO trading performance reached 30% for deals with proceeds of $50M or greater
  • Proceeds in Q4 2024 doubled compared to the same period in 2023, led by aircraft maintenance services provider StandardAero which raised $1.4B
  • Optimism for the US IPO market in 2025 is supported by stable interest rates, robust equity valuations, and lower volatility; artificial intelligence was a popular theme for investors in 2024, but faces uncertainty in 2025 due to government regulation and competition from China

Economic Overview

• In the December 2024 report, U.S. CPI increased 0.4% MoM for a 2.9% increase YoY; core CPI (excluding food and energy) rose 0.2% MoM, representing a 3.2% increase YoY
  • Prices for services are up 4.4% on a YoY basis, while energy is down -0.5% YoY, led by a -13.1% YoY drop in fuel oil
• Wages rose MoM in December, with the average hourly nonfarm earnings rising by 10 cents to $35.69; this figure marks a 4% increase from December 2023
• At the Federal Reserve’s December meeting, the overnight borrowing rate target range was cut 25 bps to 4.25%-4.5%, back to December 2022 levels; the Fed indicated only two rate cuts in 2025 should be expected, with the median “dot plot” Fed forecast showing a rate of 3.9% by the end of 2025
  • Housing data suggest consumers are beginning to adjust to a new normal of high mortgage rates, as November data showed existing home sales accelerating 6.1% YoY, the largest gain since June 2021; 30-year mortgage rates in December finished the year at 6.9%, up 24 basis points from last year
  • Bonds have largely held steady over the course of the year, with the S&P Aggregate Bond Index up 1.8% YoY
• The Federal Reserve projects real GDP growth to come in at 2.5% for full-year 2024, a half a percentage point increase in expectations from September
  • The U.S. ISM PMI manufacturing index indicated light expansion (0.9% MoM) in the manufacturing industry in December; the FRB’s Industrial Production Index, which measures current real output and paints a broader picture, also grew 0.9% in December
  • The December jobs report showed 256,000 nonfarm jobs added, led by growth in Healthcare and Retail Trade; the unemployment rate was unchanged at 4.1%, marking 7 straight months between 4.1%-4.2%
  • Measures reflecting the total number of people in the workforce such as the employment population ratio and the labor force participation rate have remained steady in recent months, holding at 60.0% and 62.5%, respectively
  • Global economic growth remained stable in 2024, posting a growth rate of 2.8%, 0.1% above the last UN forecast issued in May
    • The UN forecasts global economic growth to be unchanged in 2025 at 2.8%, with growth expected to slow as continuing geopolitical tensions, tight fiscal policy, and debt challenges could subdue expansion
      • US GDP growth is expected to slow from 2.5-2.8% in 2024 to 1.9% in 2025 due to weaker labor market conditions and wage growth, and public spending cuts
• The Congressional Budget Office anticipates moderated spending from consumers and governments will contribute to cooling GDP growth and decelerating inflation over the next three years
  • In the near-term, the federal budget deficit is expected to decrease as a percent of GDP, from 6.2% in 2025 to 5.2% in 2027; later years expect outlays to increase faster than revenues, climbing back to 6.1% in 2035
  • Mandatory spending and interest payments are expected to increase public debt over the next decade, with federal debt held by the public rising to 118% of GDP in 2035