The first half of 2024 demonstrated a dynamic landscape for mergers and acquisitions (M&A) in the United States. Despite macroeconomic uncertainties, including the interest rate environment and inflationary pressures, strategic consolidations gained momentum, driven by factors such as technological advancement, supply chain optimization, and market expansion.

The first half of 2024 recorded approximately $350 billion in announced US M&A transactions, reflecting a 15% increase compared to the same period in 2023. While interest rates had risen, many acquirers were leveraging cash reserves and low debt levels to pursue strategic acquisitions. With interest rates now starting a cycle of easing, the reduced cost of capital will bridge valuation gaps and contribute to higher transaction activity.

Sector Highlights

• Technology: Continued to lead M&A volumes, accounting for 30% of total transactions, with notable acquisitions in artificial intelligence and cybersecurity.
• Healthcare: Represented 25% of total deals, driven by consolidation among pharmaceutical companies and healthcare providers seeking efficiencies and expanded market reach.
• Financial Services: Saw significant activity as fintech companies pursued partnerships with traditional banks to enhance digital offerings.

In the section below, we consider the M&A outlook for several key industries in the Central and Southern United States.

Aerospace and Defense

Aerospace and Defense M&A activity is expected to increase among small to midsize transactions to fill strategic gaps in areas including technology and labor talent. As companies review their holdings, non-core assets will be prepared for divestitures, fueling deal activity. Companies will also continue to secure supply chains through acquisitions.
The defense sector continues to emphasize innovation and digital advancement to keep its technology infrastructure agile. Geopolitical concerns within the Middle East and Ukraine are contributing to higher defense spending.

Commercial airlines, while experiencing air travel exceeding 2019 levels, are choosing to retain their aging fleets as they face labor issues, inflation, and supply chain difficulties. These factors contribute to the focus on maintenance, repair, and overhaul (MRO) services.

Business Services

Business Services continues to be a high demand area for strategic investment activity. Leading sectors continue to be HVAC, plumbing and mechanical. Companies are looking to expand market reach, geography, or technological capabilities and are turning to M&A. They can also broaden their product offerings and more readily comply with environmental regulations by looking for targets offering energy-efficient solutions.

Landscaping and pest control also continue with heightened deal activity and volumes, particularly in the South which normally leads deal volume. Trends in outdoor living, urbanization, and home restoration will drive demand for these services Business services with recurring revenue from membership and subscription models drive higher valuations and greater interest from buyers. High market fragmentation means many opportunities to gain market share through M&A.

Chemicals

Several factors may contribute to a rebound in chemical M&A activity through the end of 2024. Lowering interest rates and a waning concern of global recession are boosting optimism and appetite for acquisitions. Continuing efforts to divest noncore assets and strengthen supply chains will also fuel deal activity.

The chemicals industry faces workforce challenges of retirements in the manufacturing area and securing talent for technological needs like AI, data analytics, and digital literacy. These technological advancements could be seen as value creation by dealmakers as they acquire new assets and implement new capabilities.

The US is viewed as an attractive location for chemical deal activity because of its economic incentives, access to raw materials, and developed energy infrastructure.

Energy

Upstream deals are continuing to increase, influencing the midstream subsector and oilfield services. One challenge for midstream and oilfield services acquisition activity is the customer concentration caused by the consolidation. For example, a midstream company in the Permian is likely to have most of its business concentrated among five or six customers who represent the majority of the activity in that basin. This upstream consolidation has accounted for 12 mega deals since July 2023, most recently ConocoPhillips’ announcement to acquire Marathon Oil.
Midstream companies are looking to compete in price and delivery and are using acquisitions to help with customer base, technology, and geography.

As renewable energy struggles with a fossil fuel-based infrastructure, operational and supply chain difficulties, deals are turning back to traditional energy.

Engineering and Construction

The outlook for deals in engineering and construction is encouraging, in spite of the headwinds of economic uncertainty, the upcoming Presidential election, and muted activity over the last quarter.

Companies with high infrastructure exposure in surface transportation or power, for example, are attractive M&A targets. Firms that adopt AI to assist in project management, safety standards, or resource allocation are expected to be leaders in the sector.

Public construction in areas such as healthcare and transportation (roads, bridges, utilities) outpaced growth of private construction which was hampered by the high interest rates affecting the market. Residential single-family starts saw an increase while multifamily units declined.

Healthcare

Deal activity in healthcare this year has been consistent with 2023 levels. Deal volume is lower than 2022 highs, but almost twice pre-pandemic deal volume.

Physician medical groups and the Other Services subsector (including such companies as ambulatory surgery centers, medical office buildings, and home infusion services) led deal volume activity, while Pharma services and Labs, MRI & Dialysis were the leading subsectors for deal value.

Healthcare M&A activity is expected to increase in the coming months with tailwinds of lower interest rates, high capital availability, and many sponsors wanting to exit and return capital to their partners.

Transactions remain important to companies trying to keep pace with the changing dynamics and innovation within the healthcare industry. Companies will need quality diligence preparedness and strategy to combat surprises and delays during the diligence process, particularly when it comes to technological advancements like AI and cybersecurity.

Industrial Manufacturing

While deal volume in industrial manufacturing remains subdued, deal value experienced a slight increase supported by profitability growth in the sector. The easing of interest rates and the policy directions determined by the upcoming election will impact deal activity.

Strategic bolt-on deals and midmarket acquisitions have been the trend in M&A activity as companies have faced stubborn inflation and high interest rates throughout the first half of the year. Bolt-on deals will continue to be attractive as financial sponsors look for growth or future opportunities to exit longer-held investments.

AI and automation remain a focus as industrial manufacturing companies look to technological advancements for innovation and increased productivity. These advances also improve safety standards, project management, and resource allocation, all helping to gain a competitive advantage.

Transportation and Logistics

While M&A activity seems to have stabilized in transportation and logistics, deal volume and value have not returned to pre-pandemic levels. Strategic investors have handled the headwinds better than financial sponsors as they account for 86 percent of deal volume and 91 percent of deal value over the first half of the year. Strategics benefited from the past favorable freight rates, making them less reliant on outside capital and likely had a long-term view of the freight rate cycle, helping them more effectively identify and transact deals that deliver synergies and cost savings.

Financial sponsors did, however, accumulate a portfolio of transportation and logistics assets before and during COVID-19. If valuations continue to rise, these assets coming to market could increase M&A activity in the next six months.

Transactions involving digital improvements, technological advances, or financial synergies remain attractive in the sector. Future deal activity could also increase given the potential for favorable changes in freight and/or interest rates and the upcoming election cycle.

Sources: This report has been compiled from reports and research including federal data, independent analysis, Bain & Company, EY, Federal Reserve, Reuters, Janes Capital, US Chamber of Commerce, Oilprice.com, Kaufman Hall, DC Advisory, Kiplinger, PCE-Companies, Mergermarket, RL Hulett, Bass, Berry, & Sims, Roll Call, PricewaterhouseCoopers, Deloitte, HPC, Charles Aris and SDR.

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