Merger and Acquisition Activity Expected to Increase This Year

A surge in mergers and acquisitions is anticipated to reshape the business landscape this year, marking the end of a dealmaking drought that has plagued the markets. Last year witnessed the downfall of several high-profile mergers, including Amazon’s proposed acquisition of iRobot, a company specializing in Roombas, smart automated vacuums that traverse through homes autonomously. This deal faced opposition from watchdog groups, citing concerns over consumer privacy and fair competition, ultimately leading to its termination in January 2022.

Similarly, another merger between JetBlue and Spirit Airlines encountered obstacles, with a federal judge intervening due to worries about its impact on low-income travelers relying on Spirit Airlines’ affordable airfares. Regulatory hurdles posed insurmountable challenges for the merger, causing both companies to abandon their plans and Spirit Airlines to file for bankruptcy in November.

The most contentious breakup involved grocery chains Kroger and Albertsons, with the former attempting to acquire its long-standing rival, sparking apprehension among advocacy groups about potential threats to competition and a rise in grocery prices. The Federal Trade Commission stepped in to block the merger in February 2024, leading to a legal showdown resulting in a multibillion-dollar lawsuit by Albertsons against Kroger for alleged negligence in addressing regulatory concerns.

Ongoing challenges in the dealmaking landscape have been attributed to escalating interest rates and stringent regulations implemented since 2022. Heightened interest rates have raised the bar for companies contemplating mergers as they evaluate the allocation of capital amid varying returns on investments. The regulatory environment has also become increasingly restrictive, as exemplified by the introduction of the “2023 Merger Guidelines” by the U.S. Department of Justice under the Biden administration, aimed at curbing anti-competitive practices and facilitating intervention in corporate mergers.

The stringent regulations and high-interest rates have contributed to a significant decline in M&A activity over the past years, hitting multi-year lows in 2023 and expected to plummet further in 2024. The policies imposed by the Biden administration have acted as a deterrent to dealmaking, with the number of completed deals in the U.S. plummeting to a decade low amidst heightened scrutiny and regulatory oversight. Despite the temporary constraint imposed by the 2023 Merger Guidelines, the fundamental drivers of M&A remain unchanged, emphasizing the strategic and economic rationale behind such transactions.

With interest rates forecasted to decline following rate cuts initiated by the Federal Reserve and a pro-deregulation stance from President Donald Trump’s administration, a resurgence in M&A activity is on the horizon. The easing of regulatory barriers, coupled with a favorable interest rate environment, is poised to reinvigorate the M&A landscape and reignite the momentum of dealmaking activities. As companies navigate through the changing economic and regulatory landscape, the forthcoming period presents promising opportunities for strategic business consolidations and acquisitions to drive growth and innovation across industries.