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Interest rates could push M&A activity higher in 2024

As Alaska Airlines (ALK) is set to buy Hawaiian Airlines (HA) for $1.9 billion, the Federal Trade Commission (FTC) is investigating Exxon's (XOM) planned merger with Pioneer Natural Resources (PXD).

S&P Global Market Intelligence Editorial Lead Joe Mantone examines M&A activity in 2023, discussing with Yahoo Finance the conditions that could boost or hurt M&A forecasts for the new year.

"Something that could help M&A in 2024 is if... [interest rates] stop rising, if they stay at an elevated rate without increasing, that can help boost M&A activity," Mantone says. "Just because buyers have a better idea of what their financing is going to cost."

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video transcript

AKIKO FUJITA: Joe, good to talk to you. You know, this deal-- potential deal that was announced earlier this week really got us talking to say is the activity going to start to pick up even more going into 2024, despite the thinking that when we're in a higher rate environment, M&A isn't necessarily the first place companies look.

JOE MANTONE: Sure. Yes. Well, first of all, thanks a lot for having me on here. And yes, we have been seeing a few deals here and there.

But the overall takeaway, I think, is just that M&A is going-- it's been slow, you know, from all of this year. And it was much slower in 2022 than it was in 2021. So it's going to take time for the recovery to really kick in.

As you mentioned, the higher rates-- I mean, the higher rate environment certainly makes M&A more challenging. But something that could help M&A in 2024 is if-- you know, rates are expected to stay higher for longer. But if they stop rising, if they stay at an elevated rate without increasing, that can help boost M&A activity just because buyers have a better idea on what their financing is going to cost. When it's rising, the financing gets more expensive. It can get even get more expensive from the time that you announce the deal to the time that the deal is actually completed.

RACHELLE AKUFFO: And so, as we dig into the size of the deals versus the number of deals, then what does that mean in terms of expectations for 2024? And which sectors look perhaps the most ripe for more M&A activity?

JOE MANTONE: Sure. Sure. Yeah.

So I was recently looking at some of our data on large M&A deals. I mean, the large M&A deals have been very muted this year. I think we've seen 14 $10 billion-plus M&A deals since the start of the second quarter. And I was looking back at our data. And it was in the second quarter of 2019 alone, we saw 14 deals over $10 billion.

And, you know, along with the higher interest rates, another deterrent for large deals, especially in the US, has been the antitrust pushback from the current administration. Not all the deals that have been getting pushback have actually been terminated. Some of them have gone through, especially-- the biggest example is the Microsoft-Blizzard deal. But, you know-- but that deal did face a lot of challenges. So it's-- you know, the pushback from the regulators on M&As has certainly elongated the process.

And as the process gets longer, you know, it adds cost. And it certainly brings some pause. But before, companies would want to pursue transactions. So it's definitely been a deterrent, the antitrust pushback.