Episode Summary
Executive Summary: Goldman Sachs M&A co-heads Stefan Feldgoist and Mark Sorrell say 2023 dealmaking was constrained by rate shocks, valuation gaps, and geopolitics, but dialogue has rebounded to 2021–22 levels. They expect 2024 activity to improve gradually, led by natural resources, healthcare, selective tech recovery, spinoffs, and large corporate/public-to-private deals, while private equity exits remain a key catalyst.
Main Topics: Macro headwinds and valuation reset (Priority: 5/5): Rising rates, geopolitical instability, and valuation mismatches slowed M&A execution in 2023, even as underlying company performance stayed strong. Robust dialogue vs. subdued transaction counts (Priority: 5/5): Client conversations and strategic interest have recovered strongly, but that has not yet translated into the same volume of completed deals seen in peak years. Sector leadership: natural resources, healthcare, tech, industrials (Priority: 5/5): Natural resources and healthcare drove much of the activity; tech is recovering after a valuation reset; industrials stayed resilient. Private equity constraints and future rebound (Priority: 5/5): Higher financing costs and valuation uncertainty reduced PE activity, but portfolio pressure, exit demands, and lower-for-longer rates should bring activity back. Mega deals and public-to-private resilience (Priority: 4/5): Very large transactions have held up, especially in energy, pharma, and public-to-private deals, where size is not blocking strategic intent. Spinoffs and corporate simplification (Priority: 4/5): Boards are increasingly using separations and spinouts as a unilateral, certainty-rich way to simplify portfolios and respond to activism. Regional outlook outside the U.S. (Priority: 3/5): Europe and Asia are more cautious due to weaker growth and greater geopolitical exposure, but are expected to lag the U.S. by only 6-9 months.
Key Arguments: Interest rate increases created a rapid valuation reset that made it harder for boards, private equity sponsors, and banks to agree on pricing and financing, suppressing transaction completion. The market is still challenged because earnings remained strong, so many boards have been slow to accept lower valuation paradigms. Confidence is the main driver of M&A; if earnings or macro confidence weakens, deal timelines could change quickly. Natural resources have been the most active area because of strong cash flows, scale benefits, and global demand growth. Healthcare remains active because large pharma companies have significant cash and want access to new molecules and compounds. Technology M&A is rebounding from a prior valuation shock and should improve in 2024. Private equity activity is down from its peak share of the market because higher borrowing costs hurt returns, but selling pressure from LPs and portfolio-company needs should increase exits. Corporate M&A has stayed relatively steady compared with 2018-2019 and is filling part of the gap left by weaker PE activity. Spinoffs are likely to remain strong because they do not depend on finding a buyer or favorable IPO conditions and are often driven by activism. Outside the U.S., weaker growth and geopolitical proximity to Europe make clients more risk averse, though the cycle should follow the U.S. with a lag.
Data Points: Peak share of M&A market for private equity: 35-40% - Stefan said PE represented this share at the peak but is now much smaller. Timeframe for typical valuation realization period: 6-9 months - Stefan contrasted a normal adjustment period with the longer-than-usual one in this cycle. M&A as a share of GDP: Record low / low single digits - Stefan said current M&A activity is at a historically low percentage of GDP versus a mid-single-digit historical norm. Historical M&A as a share of GDP: Mid single digits - Used as the longer-term benchmark for current deal activity. Scale of PE portfolios: Well over 1,000 substantial portfolio companies - Stefan cited this as a forcing function for future sell-side activity. Lag for Europe and Asia versus U.S.: 6-9 months - Mark said non-U.S. markets typically follow the U.S. with this delay. Podcast recording date: Thursday, November 30, 2023 - Episode timestamp for the discussion on the 2024 outlook.
Pivotal Quotes: "The dialogue remains extremely robust right now." — Stefan Feldgoist: Describing how client conversations have recovered even though completed deal volume is still below peak levels. "Confidence is the number one driver of M&A." — Stefan Feldgoist: Explaining why sentiment, earnings visibility, and macro stability matter most for dealmaking. "When clients move risk-on, activity ramps up very quickly." — Mark Sorrell: Summing up how M&A can accelerate once corporates perceive a viable window to act.
Implications: 2024 looks cautiously better for M&A, but recovery will hinge on confidence, rates, and geopolitics. Expect more activity in resources, healthcare, spinoffs, and selective tech, with private equity exits and large corporates likely to drive the next wave.
About Goldman Sachs Exchanges
In each episode of "Exchanges," people from the firm share their insights on developments shaping industries, markets and the global economy.