Economic lights are green for dealmakers in 2024
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Illustration: Aïda Amer/Axios
A key question for U.S. dealmakers in 2024 will be if they continue to prioritize what Americans say about the economy over how they actually behave. Words vs. actions.
The big picture: Investors and bankers like to think of themselves as sober number crunchers, buoyed by just a bit of hunch and pattern recognition, but they're heavily influenced by the sentiments of friends and family who populate gloomy polling data (i.e., where animal spirits go to die).
- A result has been weak deal activity in 2023.
- VC disbursements into U.S. companies are down 35% year-over-year, through the end of Q3. Private equity value for U.S. deals is off 36% year-over-year, through last Thursday, while overall U.S. M&A volume fell 11%. The 2023 IPO market has been busier than it was in the dregs of 2022, but still just a fraction of 2020 or 2021 activity.
Zoom in: Some of the slowdown can be attributed to dealmakers spending more time with existing portfolio companies, particularly the ones for which they overpaid in the post-pandemic euphoria.
- Some can also be attributed to private market fundraising concerns, as rising rates led some LPs to reassess their allocation strategies.
- But, again, fear has played a crucial role. If things are rotten, why bite into new apples?
Reality check: The U.S. economy is objectively strong, with the latest data points being record-breaking Black Friday and Cyber Monday spending (including net-new demand, not just higher prices).
- Mix in a sizzling GDP report, continued job growth, and a boom month for stocks. Even inflation is cooling a bit, and most Fed watchers expect rate cuts beginning next summer.
- Sure there are concerns, particularly when it comes to geopolitics, but that's kind of an eternal reality. Perfect being the enemy of the good, etc.
The bottom line: Dealmakers get mulligans for 2023. Come January, however, the pressure begins to rise.
