View of skyscraper looking to the sky.

EY M&A sector of the year: Tech leads M&A activity in 2023

M&A activity in 2024 driven by new technology, consolidation and PE. Tech, energy and life sciences bear watching.

After a slow start to the year, US M&A activity is showing signs of an uptick, driven in part by the need for companies to acquire technology and other capabilities to spur growth, the evolution of the energy sector, and private equity deal activity. Through November 30, $1.38 trillion of deals valued at $100 million-plus have been announced, according to an EY analysis of Dealogic data, roughly in line with the same period in 2022. 

US $100 million+ deal volume and value

Volume remains down, due to barriers such as higher interest rates, geopolitical uncertainty and heightened US antitrust scrutiny. Continuing into 2024, M&A activity could be spurred by several factors. Companies need to show growth. They need to address customer demand for generative artificial intelligence (GenAI) and other technologies. At the same time, many companies are looking to access markets to serve existing customers and attract new ones.

As companies adjust to a higher-for-longer interest rate environment, they can look beyond short-term headwinds and seek M&A opportunities to deliver on their strategic growth plans.

Mitch Berlin

EY Americas Vice Chair, Strategy and Transactions

In this article, we focus on three sectors that had the most deal activity announced in 2023 through November 30, based on both volume and value — technology, energy and life sciences — as we identify the most compelling sectors for M&A activity now and in 2024. 

These sectors demonstrate that there is a mix of opportunities for both bolt-on acquisitions and megadeals that can reshape an industry.

Companies still need to show growth and innovation to stay market relevant and competitive; M&A is one way to get there

Elizabeth Kaske

EY Americas Strategy and Transactions Buy & Integrate Leader

Jump to a section

  1. Sector of the year: Tech
  2. Sector to watch in 2024: Energy
  3. Sector spotlight: Life sciences
  4. 2024 US M&A activity outlook

Sector of the year | Tech

Tech M&A activity bouncing back with boost from AI and cybersecurity

Tech M&A volume and value saw a jump in Q3 from prior quarters this year but has generally been down in 2023 and still trails pre-pandemic levels from lows earlier in the year. Q4 is trending positive, setting the stage for a stronger 2024. While companies are being more discerning, a surge is expected as companies look to add AI and other capabilities to their product portfolios. In fact, demand for these technologies has also helped drive tech stocks: the sector has outperformed the S&P 500 by about 10% since the start of 2022, according to EY analysis of CapIQ data. Meanwhile, PE funds are getting back into the market via sell-side activity and are also expected to accelerate their investment in software companies as multiples decrease.

Charts show US technology deal value and volume by year from 2018 to 2023 (as of Nov 30).

Sector to watch in 2024 | Energy

Decarbonization, consolidation to drive energy deals in 2024

As part of the ongoing energy transition, the combined oil and gas, power and utilities, and mining and metals sectors have seen a surge in announced deal value this year, driven by two major deals, though volume remains down compared with a year ago. The driving deal forces have included strong cash flows, renewed investor confidence, legislative incentives around alternative and renewable technologies, and the recognition that affordable, reliable and sustainable energy supplies are needed globally.

Charts show US energy deal value and volume by year from 2018 to 2023 (as of Nov 30).

Sector spotlight | Life sciences

Life sciences companies focus on the core with bolt-on deals

Life sciences M&A in 2023 has been returning close to pre-pandemic M&A levels, and we expect this rebound to continue. It was the second most targeted sector this year through November in terms of deal volume. 

With biotech valuations and IPOs down, patent expiries looming and an ongoing innovation renaissance, there are strong reasons for life sciences companies to use the record US$1.4 trillion firepower they hold to pursue acquisitions that fit their long-term growth strategy. The sector in fact has performed in line with the S&P 500 since the beginning of 2022.

Ranu Carroll

EY Americas Strategy and Transactions Life Sciences Leader

2024 US M&A activity outlook: Expect gradual, steady growth

How EY can help

M&A has begun showing more signs of life, especially for larger dealmaking, though overall US deal value was roughly flat. Private equity is also showing more activity, with volume up from its Q1 trough. After 2023 marks a new baseline and return to pre-pandemic levels, we anticipate gradual and steady growth in both corporate and PE deals in 2024.

 

Headwinds such as higher interest rates and geopolitical uncertainty remain, but US interest in M&A is improving: 52% of US CEOs plan to engage in M&A in the next 12 months, according to the October 2023 EY CEO Outlook survey, compared with 35% of their global colleagues. 

 

“We expect companies to focus on deals that are likely to produce growth, though CEOs are also willing to do larger deals that rely on both revenue and cost synergies, as long as they are certain those synergies can be achieved,” Kaske said. “In terms of innovation, companies are looking at opportunities to add artificial intelligence and data capabilities.”

 

The primary movers are likely to be serial acquirers, which have the necessary cash flow and capabilities, while they are also likely to be more reliant on inorganic growth.

 

We do not expect to see new entrants for a while as the cost of capital remains high. The valuation gap between buyers and sellers could also remain a check on deal activity. But more acquisition opportunities are emerging as some companies that were expecting to conduct IPOs look to sell instead, while smaller companies find they do not have the available capital to remain viable.

Summary 

M&A activity in the US is starting to show signs of life as leaders look for growth opportunities despite higher interest rates and geopolitical uncertainty. Our EY M&A sector of the year and sectors to watch all offer the prospect for more M&A activity in 2024.

Contact our M&A advisory team
Get in touch to learn how EY can help with your M&A strategy. 

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.