As we move through the second half of 2024, several factors could impact the M&A market. Among the most top-of-mind are the anticipated interest rate cuts, the impending US elections, and a renewed interest in the technology, media, and telecommunications (TMT) sector, spurred by the AI boom and even private equity’s (PE) interest in sport. What does this mean for dealmaking?

Lower Rates: More M&A Ahead?
One of the most significant macroeconomic factors influencing M&A activity is the interest rate cut by the Fed, anticipated to occur this month. Fed Chairman Powell recently signaled that an adjustment is forthcoming, in response to a slowing economy and easing inflationary pressures.

The lower interest rate is expected to reduce the cost of borrowing – good news for M&A, as companies are more likely to finance acquisitions when borrowing costs are lower, leading to more deals in the pipeline. Moreover, lower interest rates often lead to a higher stock market, providing companies with stronger currency to use in stock-for-stock deals. PE firms could also benefit from lower rates, as leveraged buyouts become more feasible.

As such, this potential rate cut could fuel a surge in M&A activity, particularly in sectors that are already cash-rich or are looking to consolidate their market positions.

US Elections: Plan Ahead for Uncertainty
While the expected rate cut should be positive for M&A, the upcoming US presidential election brings a degree of uncertainty to the market. History tells us that M&A deal value has declined between election day and year-end in four of the last seven election cycles, and that a double-digit gain occurred in only two of those cycles (1992 and 2004).

Potential changes in government policies, tax regulations, and trade agreements can impact strategic planning. But whether dealmakers take a ‘wait and see’ approach or take advantage of current opportunities is anyone’s guess right now.

Whatever the case, efficient and effective planning remains key to success for dealmakers, including thorough due diligence. This approach is already playing out, with dealmakers reportedly spending more time preparing rather than executing deals, as the emphasis is on quality over haste.

Touchdown for TMT: Sports Investment, and AI, as a Sector Assist
Haste was not on the table when it came to the NFL’s recent announcement that it would be allowing PE to invest in the franchise; the discussion around ownership changes began back in 2019 and the franchise is the last major North American sports franchise to allow PE investment.

Investors appear to be increasingly interested in the sports sector, both in the US and abroad, as valuations have soared and the attractiveness of opportunities associated with a strong brand, loyal fan base, long-term contracted revenues, and international accessibility – including the technology, merchandise, and marketing related to the teams. And the convergence of sports and the TMT sector is creating new opportunities for M&A, as companies look to leverage their strengths in digital media, streaming services, and content distribution.

AI, telcos, cybersecurity, and semiconductors are also playing significant roles in providing a needed assist for the sector, which has had ups and downs since its respective deal value and volume highs in Q2 2021 and Q1 2022.

In H1 2024, TMT M&A value as a whole in the Americas was up by 85.2% to US$251.4bn, representing both the largest relative and absolute yoy gain of any sector – despite volume decreasing by 18.7% to 1,688 deals over the same period. PE buyers were responsible for 43.4% of that value total, or US$109.2bn, a 65.4% increase compared to H1 last year.

The sector remains attractive due to its continued growth potential and the rapid pace of technological innovation. With companies looking to expand their digital capabilities and capitalize on emerging trends such as AI, the TMT sector could see robust M&A activity in the coming months.

And the numbers bear this out: TMT sell-side deals on Datasite were up 12% in H1 compared to the same time last year. Since this activity represents deals at their inception rather than publicly announced, it provides a good indication of what’s to come in the next six to nine months.

Learn how Datasite, with its 50+ years of experience and nearly 15,000 financial transactions annually, can help you add preparation, control, efficiency, and speed to your next TMT deal.