2024 M&A Outlook:

Building on Dynamic Dealmaking and

Resilience from 2023, and Capitalizing
on Emerging Developments

Charles Katz, Drew Pollekoff, Erik Belenky and Zev Beeber

If dealmakers build on successes from the
past year and capitalize on emerging
M&A catalysts, there is room for cautious
optimism about the next year.

2024 M&A Outlook is a publication of King & Spalding LLP and should not be
construed as legal advice or legal opinion on any specific facts or circumstances.
The contents are intended for general informational purposes only. You are urged
to consult your own lawyer concerning your own situation and any specific legal
questions you may have.

Copyright © 2024 by King & Spalding LLP. All rights reserved.

2024 M&A Outlook:
Building on Dynamic Dealmaking and Resilience from
2023, and Capitalizing on Emerging Developments

CONTENTS

01. Introduction

02. Adhering to Winning Transactions

04. Dynamic Dealmaking

07. Capitalizing on Key Deal Drivers

10. Mitigating Heightened Regulatory Scrutiny

14. Dotting the I’s: Conducting Robust Due Diligence

17. Conclusion
INTRODUCTION Overall volume, which was largely in line with and
Last year, we recapped that coming off record-setting resemblant of pre-pandemic levels, progressively
levels in 2021, mergers and acquisitions (M&A) deal improved throughout the year and began to show
activity cooled in the second half of 2022. A number of signs of a rebound in the fourth quarter. A steady flow
headwinds that precipitated the 2022 decline – including, of divestitures, private equity (PE) add-ons and growth
among others, steadily rising interest rates and the higher equity transactions prevailed throughout the year,
cost of financing, sticky inflation, divergent valuation and we witnessed savvy dealmakers deploy creative
expectations, geopolitical turmoil, heightened regulatory transaction structures and other innovative tactics to
scrutiny, and increased economic uncertainty – endured navigate and adapt to challenging market conditions.
and further contributed to subdued dealmaking during
most of 2023. We observed buyers and sellers continuing Ongoing headwinds, geopolitical tensions and

to approach dealmaking with a more selective and lingering economic uncertainty make prognostications

cautious tone. Deals generally took longer to negotiate for 2024 difficult. However, stabilizing interest

and execute, and persistent valuation gaps, amplified rates (at least in the U.S.), cooling inflation, waning

by the increased cost of capital and volatility in the recession fears and rallying public equity markets

equity markets, caused many transactions to derail. headline a more conducive macroeconomic
backdrop. With historical fundamentals and key
Although global M&A activity in 2023 declined by 23% drivers of M&A remaining intact, emerging levers
year-over-year in deal value, according to Mergermarket may spur an uptick in activity, including in the
data, the number of deals dropped by a more modest PE space, which was notably muted in 2023.
16%, reflecting an emphasis on smaller transactions.

M&A Activity by Quarter

$1,400 14,000

$1,200 12,000

$1,000 10,000

$800 8,000

$600 6,000

$400 4,000

$200 2,000

$0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019 2020 2021 2022 2023*

Deal value ($B) Deal count

Source: PitchBook, 2023 Annual Global M&A Report

KING & SPALDING 2024 M&A Outlook 1

ADHERING TO WINNING TRANSACTIONS rebounding equity markets may present more
Carve-outs and Spinoffs: Amid challenging market attractive asset valuations for sellers yet remain
conditions, divestitures, carve-outs, separations, spinoffs at relatively opportunistic levels for buyers.
and joint ventures proved to be popular transaction
Emphasis on Smaller Transactions. In light of
structures to unlock value. With acquisitions having
recent market dynamics, we have seen a shift in
outpaced divestitures by roughly four times over the
dealmaking toward smaller deals. Sponsors are
prior two years, according to reports from PwC, we
adapting to the prevailing higher interest rate
entered 2023 with a myriad of corporate assets that
environment and the constraints of the financing
were likely to make strong candidates for divesture.
markets by opting for smaller-scale add-on deals
Carve-outs and spinoffs were strategically pursued by
and all-cash growth equity transactions and
companies and management teams to deleverage,
by purchasing smaller stakes in targets. These
optimize and simplify operations and concentrate on core
targeted, modest transactions not only forgo or
business lines against a cloudier economic backdrop.
limit the need for significant acquisition debt
Dealmakers often engaged in complex structuring,
financing, but they also limit financial downside,
such as carve-outs in which the seller retained a stake
aligning deal activity with a more cautious approach
after closing through joint venture or other long-term
to risk management and emphasizing operational
commercial arrangements. These transactions delivered
efficiency. Sponsors are increasingly pursuing
shareholder value and helped companies achieve
add-on acquisitions as part of a “buy-and-build”
capital efficiency by monetizing noncore assets and/or
strategy to scale existing portfolio companies and
underperforming units, strengthening balance sheets,
as a means to leverage their operational expertise.
and reducing operational risk. We expect these types
of transactions to remain front of mind, particularly as

Carve-Outs by Quarter

$250 1,800

1,600

$200 1,400

1,200
$150
1,000

800
$100
600

$50 400

200

$0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018 2019 2020 2021 2022 2023*

Deal value ($B) Deal count

Source: PitchBook, 2023 Annual Global M&A Report

KING & SPALDING 2024 M&A Outlook 2

Unlike leveraged buyouts (LBOs) or platform As discussed in further detail below, the specter of
acquisitions, the financing of add-ons is more feasible heightened antitrust scrutiny continues to influence
due to the smaller dollar size of such transactions and dealmaking trends. Companies are increasingly
the ability to leverage the existing credit facilities of pursuing divestitures as a means to preemptively
the acquiring PE-backed platform company. Indeed, alleviate potential antitrust concerns, further
add-on acquisitions accounted for 75.9% of PE buyouts contributing to the popularity of these transactions.
in 2023, according to PitchBook data, representing Likewise, stricter antitrust enforcement may be
the second-highest rate since 2008, and all but a playing a role in the shift toward smaller deals,
handful of these transactions were valued under $1 which are inherently less likely to invite scrutiny
billion. For the first time, growth equity transactions or review, and may avoid reporting requirements
accounted for a greater share (21.5%) of all PE under the Hart-Scott-Rodino (HSR) Act. Barring an
activity than did LBOs (18.9%) (see Figure 1). Minority unlikely shift in antitrust policy ahead of the 2024
investments – up 4% in 2023, which is particularly U.S. presidential election – such activity, in fact,
notable in the context of the overall decline in M&A may be as fierce as ever during this “contract year” –
volume – further enable sponsors to avoid refinancing companies will continue to consider these types of
the target’s debt at high interest rates while helping transactions to minimize or address regulatory risks.
companies pull from a new revenue source.

In what seems like an annual refrain, sponsors

are sitting on record levels of “dry powder” with Figure 1 –Growth and Add-On Share of PE Deal Count
a mandate to deploy funds wisely in the wake of
economic uncertainty. Similarly, corporations are 100%
sitting on large cash balance sheets and need to 90%
achieve growth. Given these circumstances and
80%
the ongoing constraints in the financing market, we
expect add-on acquisitions, growth equity transactions 70%
and minority investments (on the sponsor side), 60%
and targeted, smaller deals (generally) – which are
50%
easier to justify and execute and more practical in
the current environment – to remain a continued 40%

priority for both financial and strategic buyers. 30%

20%

10%

0%
2014
2013

2015

2016

2017

2018

2019

2020

2021

2023*
2022

PE growth Add-on Buyout/LBO

Source: PitchBook, 2023 Annual US PE Breakdown

KING & SPALDING 2024 M&A Outlook 3

DYNAMIC DEALMAKING way to bridge valuation gaps. Collectively, these
Valuation-Related Deal Mechanics: To offset gaps mechanisms reduce a buyer’s financial cash burden
in expectations and valuations, astute dealmakers at the time of closing, potentially allowing a buyer
continued to opt for structured transactions. In the to forgo costly, conventional acquisition debt
case of private targets, buyers and sellers utilized financing. They further serve to align post-closing
earnouts and contingent payment mechanics based on incentives between buyers and sellers. Sellers
the fulfillment of post-closing financial or performance agreeing to such deal structures communicate
milestones in M&A transactions. Through Q3 2023, the confidence in the business, thereby narrowing
prevalence of earnouts increased 50% over the prior year perceived gaps in business value. Persistent market
(i.e., 32% of deals featured earnout provisions in 2023, dynamics – including lingering valuation disparities,
compared with 21% in 2022), according to data from SRS compressed (albeit stabilizing) transaction multiples
Acquiom. Rollovers (i.e., seller equity in the business after and higher costs of capital – will prompt buyers
closing) have been incorporated in transactions more and sellers to continue assessing and deploying
frequently and at higher equity percentages. For public creative structures and tools to overcome
targets, contingent value rights (CVRs) were employed mismatched expectations in negotiations and
not infrequently, particularly in health care deals, as a facilitate dealmaking (see Figures 2 and 3).

Figure 2 – Global M&A EV/EBITDA Multiples

11.0x
11x
10.0x 10.1x 10.1x
10.0x
10x 9.5x 9.6x
9.2x 9.3x
8.9x
9x

8x

7x

6x

5x
2014 2015 2016 2017 2018 2019 2020 2021 2022 TTM

Source: PitchBook, 2023 Annual Global M&A Report

Figure 3 – Closing Consideration Trends

Cash + management
rollover

All cash

All stock

Cash/stock combo

Source: SRS Acquiom 2023 M&A Deal Terms: Three Trends to Watch

KING & SPALDING 2024 M&A Outlook 4

Innovative Financing Tactics: The financing gap continued to display resilience as they adapt to
remained a pain point. According to PitchBook reports, the choppy financing markets, transforming from
last year’s total institutional loan issuance of $233.5 buyout shops to alternative asset managers and
billion was only marginally higher than the 2022 total diversifying their product offerings to expand into
of $225.3 billion, both of which paled in comparison private credit and other capital solutions. In the
with the prior 10-year annual average of $380 billion context of sponsor-driven M&A transactions, PE
(see Figure 4). Of last year’s total institutional loan funds are providing greater upfront sponsorship for
issuance, M&A accounted for a meager 30%. Although deals via equity contributions, in some cases even
J.P. Morgan and Barclays forecast significant increases funding pure equity deals. Average leverage levels
in total loan volume for 2024, with estimates of $375 for new LBOs declined to 5.9x from 7.1x in the prior
billion and $320-350 billion, respectively, refinancings year, and the average level of equity contribution for
will likely constitute the bulk of such growth. large LBOs reached 52% in 2023, an all-time high.
This trend in equity contributions is notable in the
Dealmakers are increasingly making use of alternative
context of recent signals from the Federal Reserve
financing arrangements and pursuing innovative tactics
regarding rate cuts for 2024 and beyond; sponsors
to overcome the financing gap. In line with prior years’
are facilitating dealmaking now by putting up more
trends, buyers have benefited from greater access to
cash with the plan to later increase leverage or
private credit funds, sovereign wealth funds and other
pursue refinancing under less costly conditions.
nontraditional sources of direct lending. Sponsors have

Figure 4 – U.S. Leveraged Loan Value

$700
Other

$600

M&A
$500

$400

$300

$200

$100

$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: PitchBook | LCD, “2024 US Leveraged Loan Outlook: Strong returns, improved issuance likely,” December 17, 2023

KING & SPALDING 2024 M&A Outlook 5

Joint ventures, clubbing deals and consortium sellers agreeing to deferred payment schedules
arrangements – with sponsors teaming up with to provide buyers with a longer time horizon to
other sponsors and, in some cases, strategic buyers iron out their financing. With PE-driven minority
or even activists – were also creative methods for investments becoming more commonplace, we
alleviating financing limitations. Not only do these have seen sponsors execute creative minority
arrangements reduce the amount of funding needed investment structures (or acquisitions of less than
to execute transactions, but they also may improve all of a target company) where they negotiate call
access to financing by leveraging a consortium’s options to acquire a majority (or the remaining)
enhanced bargaining power to negotiate more stake in the target company. Figure 5 shows
favorable terms with lenders. Additionally, parties relevant findings from a recent Deloitte survey
are utilizing seller notes and other forms of seller regarding the use of alternative financing vehicles.
financing to bypass strained negotiations, with

Figure 5 – Use of Alternative Financing Vehicles in

Past Year or Likely Use in the Next Year

All equity 38

Additional cash/dry powder 35

Seller notes 27

Seller equity 36

51

Alternative structures to traditional M&A 46

(e.g., JV, strategic partnerships)
0% 20% 40% 60%
Fall 2023
N=1,500

Source: Deloitte, 2024 M&A Trends Survey

KING & SPALDING 2024 M&A Outlook 6

CAPITALIZING ON KEY DEAL DRIVERS is giving way to an impending “maturity wall” that
Sponsor Activity: Sponsor activity, which was largely PE sellers are facing for deals made five to seven
subdued throughout 2023 – with total U.S. PE deal years ago in better economic conditions, which are
value down 29.5% on the year and hitting its lowest beginning to reach their natural exit timelines. Although
point since 2017 outside the pandemic-induced persistent valuation gaps between buyers and sellers
2020 levels – seems primed for an uptick in 2024. will narrow, with the adjustment process around
pricing expectations not yet completed, PE sellers
PE exit activity declined dramatically (with total U.S.
may ultimately need to accept lower exit valuations to
sponsor exit value dipping 33.4% below pre-pandemic
align with buyers due to these market pressures and
averages, and global PE exit value shrinking to $574.2
forces. Consequently, many expect sponsor exit activity
billion, its lowest point in a decade, according to
to be at the forefront of an M&A rebound in 2024.
PitchBook), as sponsors grappling with prolonged
inflation and unattractive valuation trends have opted to At the same time, with dry powder accumulating
hold on to assets longer, waiting for market conditions and once again hitting record levels (totaling $2.59
to improve. Indeed, the median holding period for trillion globally and approximately $1 trillion for the
U.S. PE investments hit 6.4 years, the first time since U.S. market), there will be continued pressure from
2015 that figure has exceeded the six-year mark. limited partners for PE funds to deploy capital (see
Figure 6). We expect stabilizing interest rates and
However, sponsors are now feeling the pressure to
inflation, converging valuation expectations, and
monetize portfolio companies, exit positions, and
the gradual reopening of the initial public offering
generate liquidity for and/or return capital to their
(IPO) market. These generally are positive for M&A
limited partners. Distributions to paid-in capital have
transactions in that they provide more incentive for
been at historically low rates, and investors – who have
targets, whether or not they are sponsor-backed, to
been experiencing net drawdowns since 2018 with
pursue strategic options and run dual-track processes.
limited capital return from sponsors – are becoming
They also give sponsors another pathway to exit
reluctant and/or too constrained to invest more
investments to fuel additional momentum for sponsors
capital as a result, creating a persistent headwind
to recognize and act on opportunities in 2024.
for fundraising. Furthermore, the slowed exit market

U.S. PE Exit Activity

Source: PitchBook, 2023 Annual US PE Breakdown

KING & SPALDING 2024 M&A Outlook 7

Technology: Technology has been and will remain keep up with global trends. In this regard, many
a key catalyst in the dealmaking environment. After expect to see amplified activity, in particular in the
accounting for 27% of deal value in 2023, many renewable energy (including clean technology)
are expecting that the technology sector will see a and health care (including digital health and health
continued spike in M&A activity in 2024, driven by the care technology) sectors. PE firms and other M&A
emphasis companies are placing on their digitization players themselves are embracing AI as a tool for
strategies. The prominence of and demand for artificial identifying potential acquisition targets, assisting
intelligence (AI) and other emerging technology-based in investment decisions and automating tasks to
solutions and capabilities are at an all-time high. For improve efficiency of internal deal processes.
many businesses – which may lack the skills or time
The cybersecurity space is also poised for a
horizon to develop these capabilities on their own –
surge in dealmaking opportunities in an ever-
it is more economically efficient and feasible to buy
increasingly digital world. Given the hike in
rather than build such technology, fueling M&A and
cyberattacks and threats, the increasing complexity
investment activity. AI-driven M&A, which has largely
of safeguarding sensitive data (especially with
been confined to the technology sector until now, is
the rise in AI) and stricter regulatory compliance
beginning to expand into and drive activity across other
requirements, it is imperative for companies across
industries, and businesses are generally recognizing
all industries to continue prioritizing and investing
the need to embrace technological innovation and
in cybersecurity solutions and technologies.
digital transformation to remain competitive and

Figure 6 – Global Private Equity Dry Powder Trend,

2000-2023 ($B)
424.64
303.60
306.26
331.16
260.83

2,026.20

2,586.35
2,394.94
156.54

1,022.03

2,314.08
2,271.24
1,322.91

1,845.14
1,720.11
802.68
639.06

839.83
894.83
782.89

953.34
874.64

794.72
786.10

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023*

Source: S&P Global Market Intelligence, Private equity firms face pressure as dry powder hits record $2.59 trillion, December 13, 2023

KING & SPALDING 2024 M&A Outlook 8

Shareholder Activism: We saw elevated levels of opportunity for shareholder activists, who continue
shareholder activism in 2023, including a rise in to focus on M&A as a solution to undervaluation
the number of new players and the number of new amid macroeconomic uncertainty. Despite the
campaigns (see Figures 7 and 8). With a 9% increase slowdown in M&A activity, the percentage of
in global campaigns and a 14% increase in the U.S. campaigns with an M&A-related thesis in 2023
(increasingly focused on smaller companies), we also remained consistent with historical averages. M&A-
saw a record number of unique activists launching focused activism may experience an uptick in 2024
campaigns, up 21% from the prior year, and roughly twice as financial markets improve and last year’s first-
as many “first-timers” as the five-year average (i.e., 77 timers get more comfortable initiating campaigns.
versus 44). Equity market volatility has resulted in an

IT M&A Activity by Quarter

$350 2,500

$300
2,000
$250

1,500
$200

$150
1,000

$100
500
$50

$0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019 2020 2021 2022 2023*

Deal value ($B) Deal count

Source: PitchBook, 2023 Annual Global M&A Report

Global AI M&A

USDbn
60 840
50 700
40 560
30 420
20 280
10 140
0 0
2018 2019 2020 2021 2022 2023

Deal volume Deal count

Source: Mergermarket, Artificial intelligence takes over the world, but dealmakers warn of need for deeper due diligence – DealTech, January 17, 2024

KING & SPALDING 2024 M&A Outlook 9

Additional Drivers: Other drivers of M&A activity and Figure 7 – Global Campaign Activity
trends may support a more optimistic dealmaking
environment in 2024. These include a gradual
249 252
235
reemergence of cross-border M&A transactions, 6 1
6
30 209 Mean FY: 210 44
32
catalyzed by globalization-related growth strategies, 184 173
28
57 2
the reopening of international borders and renewed 48
33 19
60 69

accessibility to international markets, as well as 58 50

lackluster (albeit slightly thawing) IPO markets that 156

133 142 133
will continue to push M&A-related exit processes. 93 102

Furthermore, there will likely be a continued focus on

using M&A to pursue strategic environmental, social 2018 2019 2020 2021 2022 2023

and governance (ESG) initiatives, including energy

North America Europe APAC Rest of World
transition, decarbonization, the circular economy and
social impact, with heightened regulatory scrutiny of Source: Lazard, Annual Review of Shareholder Activism 2023

ESG practices and strong demand for technology or

services that touch on ESG issues (see Figure 9).

MITIGATING HEIGHTENED REGULATORY SCRUTINY Figure 8 – Number of Investors Launching

Regulatory Posture: Aggressive antitrust regulatory Activist Campaigns

enforcement remains an ongoing challenge for

183
dealmaking. Last year, we noted that the U.S.
Department of Justice (DOJ) and the Federal Trade 158
147 151
Commission (FTC) were taking increasingly active
128
positions and arguing novel theories of competitive 121 106

harm and antitrust doctrine to intervene in transactions

110 96
that previously would have cleared the initial waiting 104
88
87
periods. We also noted that regulators were broadening
the scope of their merger review in order to regulate
77
more deals and expanding the parameters by which they (42%)
48 55
43
could classify a transaction as anticompetitive. These (30%) (29%)
40 34 (36%)
(31%) (28%)
actions augured a year of intense deal scrutiny, and
2018 2019 2020 2021 2022 2023
despite the agencies suffering repeated defeats when
relying on novel theories of competitive harm, 2024
promises to be another year of active enforcement. Source: Lazard, Annual Review of Shareholder Activism 2023

2023 Merger Guidelines: In addition to aggressive

enforcement, the DOJ and the FTC have pursued an effort
to slow down M&A activity through the adoption of
new merger guidelines, which were adopted on
December 18, 2023. Previously updated in 2010, the
guidelines represent a set of principles and policies that
outline the agencies’ approach to merger regulation.

KING & SPALDING 2024 M&A Outlook 10

Although the guidelines lack the force of law, courts The updated guidelines also articulate variously
often refer to them for direction when deciding broad, novel and vague legal theories for findings of
merger challenges, and it behooves companies to competition and determinations of anticompetitive
understand the key changes to the guidelines. effect. For example, the guidelines provide that a
merger can cause competitive harm independent
As a general matter, the 2023 guidelines cement
of market share analysis if the agencies can broadly
the agencies’ ambitious objective of preventing
show existing competition between the merging
anticompetitive merger practices by “arrest[ing]
parties. Moreover, the guidelines now suggest that the
anticompetitive tendencies in their incipiency.” With this
agencies may consider the anticompetitive impact of
new, explicit commitment to prevention, the agencies
a merger on the labor market (e.g., via lower wages,
may be signaling an intent to bring challenges earlier in
reduced benefits, worse workplace conditions).
a transaction’s life cycle. And perhaps with this in mind,
the guidelines significantly lower the thresholds for Finally, the new guidelines, agency rhetoric and
finding a merger to be presumptively anticompetitive, enforcement trends highlight a unique risk to
meaning that more mergers could be challenged PE firms by introducing a broad, novel theory of
under antitrust laws than previously was possible. The anticompetitive effect based on “serial acquisitions.”
guidelines now specify that any merger producing a The serial acquisitions theory involves scrutinizing a
firm with more than 30% market share in any relevant series of acquisitions by a company and evaluating
market and an even minor increase in Herfindahl- the cumulative harm; even if an individual acquisition
Hirschman Index (HHI) concentration is presumptively in might otherwise appear uncontroversial or was not
violation of antitrust laws. For contrast, the 2010 policy independently required to be reported under the
gave no presumption with respect to market share, HSR Act, the agencies may take issue with it upon
stating only that market share is “useful to the extent review of the buyer’s history. This focus could impact
it illuminates the merger’s likely competitive effects.”

Figure 9 – The Share of ESG and Environmental-Related

Deals Has Grown Continuously

Source: Refinitiv; BCG analysis, M&A Outlook Looking Up After Bottoming Out

KING & SPALDING 2024 M&A Outlook 11

PE firms that rely even in part on roll-up strategy, as action against the deal market as it looks to make
the agencies have already demonstrated a willingness a statement heading into the November election.
to target such firms based on the theory. In a lawsuit With the significant risks posed to transactions,
filed in September 2023, the FTC alleged that the PE buyers and sellers must continue to consider
firm Welsh, Carson, Anderson & Stowe had violated antitrust risks, implications and mitigation
antitrust law through its acquisition and consolidation strategies through all phases of the transaction.
of more than a dozen anesthesia practices in Texas. The
At the outset, dealmakers need to conduct
case remains pending at this time, but the theory itself
comprehensive regulatory risk assessments
(coupled with proposed changes to the HSR premerger
in the diligence phase, factor in lengthier deal
notification form) should prompt PE firms to closely
timelines in structuring and planning transactions,
assess their acquisition strategies, including ways to
and ultimately account for the ramifications of a
articulate the procompetitive effects of any roll-ups.
prolonged, terminated or abandoned transaction,
Mitigation Tactics: Heightened antitrust scrutiny as well as unpredictable regulatory outcomes, in
has prolonged deal timelines and caused a number their decision-making processes and negotiation
of delayed, abandoned and blocked transactions. strategies. Dealmakers may continue pursuing
Some dealmakers have felt a resulting chilling effect, types of transactions that are less likely to trigger
deterring the consideration of transformative mergers regulatory scrutiny (including, as discussed
and subduing big-ticket transactions, particularly in above, smaller transactions) and deploying
certain sectors. Elevated levels of recent enforcement various structuring tactics in their arsenal, such
and the ambitious policies of the 2023 Merger as “fix-it-first” strategies. As previously discussed,
Guidelines suggest that antitrust regulation will remain utilizing divestitures and carve-outs on the front
fierce this year. In fact, it is possible that the Biden end has shown some success in preemptively
administration will double down on its regulatory alleviating potential antirust tensions.

KING & SPALDING 2024 M&A Outlook 12

 It will be paramount for dealmakers to continue
to focus on the regulatory provisions in
acquisition agreements as a risk-allocation tool
in navigating the current antitrust environment.
For example, we have seen parties increasingly
prioritizing and featuring the following deal terms,
protections and mechanisms in negotiations:

l longer outside dates and robust terms

regarding outside date extension rights
l reverse termination fees triggered by the
failure to obtain regulatory approval
l “ticking fee” mechanisms – i.e., payments
directly in exchange for or an increase in the
reverse termination fee on extensions to the
outside date – to compensate for delays
l expansive formulations of customary closing
conditions to capture developments in
antitrust enforcement (including to
address receipt of warning letters and/
or entry into timing agreements)
l the scope of “efforts” generally required
to obtain regulatory approval, and the
level of divestitures or other remedies
that can be imposed on the buyer
l the scope of interim operating covenants
in light of lengthier interim periods and
potential gun-jumping concerns

Parties should continue to look beyond the

signing and negotiate for the real and significant
potential for litigation, determining upfront which
party controls – or to what extent the parties
share control over – the regulatory strategy and
whether there is an affirmative commitment to
litigate in order to obtain regulatory approvals or
defend challenges from the agencies and potential
“tolling” of the outside date pending litigation.

KING & SPALDING 2024 M&A Outlook 13

DOTTING THE I’S: CONDUCTING ROBUST DUE Current financial conditions also make it logical
DILIGENCE for parties to conduct robust due diligence as
Economic Incentives: Early indicators suggest that a general matter. In a recent Deloitte survey of
gradual improvements in the economic environment 1,500 practitioners, corporate and PE dealmakers
surrounding M&A are coming. Even so, dealmakers indicated financial, commercial and operational
saw benefits from more robust due diligence last due diligence to be among the most important
year, and they will likely want to carry those practices drivers of successful M&A. As buyers contend with
forward for various reasons. As alluded to above, steep valuation gaps and the challenges that they
dealmakers have strong incentives to evaluate pose to negotiations, due diligence offers buyers
antitrust and general regulatory risks from the earliest an opportunity to better steer negotiations, using
deal stages. Buyers will leverage due diligence financial performance data and assessments of
reviews for their ongoing regulatory assessment operational risks and liabilities to drive consensus
strategies, deciding earlier in the diligence process about a target’s value (see Figure 10).
whether and at what price point they should pursue
an acquisition based on its regulatory risk profile.

Figure 10 – Elements Important for Achieving a

Successful M&A Deal

44
M&A strategy
47

40
Financial due diligence
36

34
Commercial due diligence 36

38
Operational due diligence
36

41
Deal valuation
39

36
Board involvement/approval
31

35
Pre-close planning
39

31
Post-close integration 36

0% 10% 20% 30% 40% 50%

Corporate Private equity

Source: Deloitte, 2024 M&A Trends Survey

KING & SPALDING 2024 M&A Outlook 14

RWI: Representations and warranties insurance (RWI) decreased from 1% of the purchase price to 0.75%
remains a staple in private target M&A transactions on average and, in many cases, as low as 0.5%.
and continues to become more accessible, affordable
At the same time, there has been a notable uptick
and pervasive in the market for deals of all sizes. The
in RWI claims activity in recent years, with Euclid
macroeconomic backdrop emphasizes the importance
Transactional reporting July 2023 as setting its single-
of the product, as buyers increasingly push for broader
month record for most claims received. This surge in
packages of representations and warranties as a
claims activity included a number of very significant
means to obtain post-closing coverage for unknown
dollar-figure claims that were filed in 2023, a trend
risks and liabilities, and sellers continue to posture
not only inevitably arising out of tighter economic
to minimize post-closing exposure and maximize
conditions but also being driven by the lower
certainty of proceeds at closing. Strong demand for
retentions. With insurers continuing to legitimize and
the product and fierce competition among insurers
stand behind the product by responding to and paying
(including as a result of a number of new entrants in the
out claims, RWI will continue to become even more
market) have allowed buyers to access RWI with very
ubiquitous in dealmaking. The rise in claims activity
favorable terms and prices. In recent years, premiums/
has caused and will continue to cause heightened
rates have dropped well below 3% to the 1.9% to 2.5%
focus of RWI insurers on the diligence performed
range (see Figure 11), and retentions (deductibles) –
by buyers during the RWI underwriting process.
i.e., the amount of loss the insured must bear in the
event of a claim before the policy limit kicks in – have

Figure 11 – Average Rate as a Percentage of Limit by Inception Quarter

Source: Woodruff Sawyer, Looking Ahead to 2024

KING & SPALDING 2024 M&A Outlook 15

While RWI continues to prove to be an effective means conditions in which buyers are placing greater
of addressing the post-closing risk allocation between emphasis on and conducting more robust due
buyers and sellers, we are seeing fewer no-survival, or diligence processes and insisting on adequate
walk-away, deals in this market, with parties utilizing post-closing coverage for risks and liabilities, the
deal escrows (including special escrows) and indemnity trend observed in RWI-backed deals may also be a
provisions more frequently. Within RWI-identified product of the corresponding heightened focus on
transactions, there has been a notable increase in the diligence in the RWI underwriting process – i.e.,
number of hybrid recourse constructs, with 67% of such leading to more diligence-based exclusions from
deals through the end of Q3 2023 featuring survival of policy coverage and buyers insisting on special
representations and warranties (up from 50% in 2022) indemnities to cover such gaps.
(see Figure 12). Consistent with tighter economic

Figure 12 – Survival (or Not) of Sellers’ General Representations and Warranties

Survival No Survival Survival No Survival

67% 33%
(Q1-Q3)
2023

93% 7%

50% 50%
2022

89% 11%

64% 36%
2021

83% 17%

64% 36%
2020

88% 12%

Source: SRS Acquiom 2023 M&A Deal Terms: Three Trends to Watch

KING & SPALDING 2024 M&A Outlook 16

CONCLUSION If dealmakers build on successes from the past
Although it is tempting to view 2023 M&A from a year and capitalize on emerging M&A catalysts in a
glass-half-empty perspective, dealmakers can identify friendlier dealmaking environment, they should be
specific areas of success, deploying creative deal able to turn lemons into lemonade. Dealmakers can
structures and demonstrating resilience in adapting manage persistent headwinds from the political
to financial and regulatory pressures. There is room and financial arenas by doubling down on what
for cautious optimism about the next year. As a has worked – prioritizing targeted and smaller
number of PE and well-capitalized strategic buyers acquisitions; aligning buyer and seller incentives
sit on record levels of dry powder or substantial cash with earnouts, rollovers and similar mechanisms;
reserves and the Federal Reserve signals rate cuts, deploying alternative financing structures;
the high costs of financing may not be as alarming as leveraging strategies to mitigate regulatory
previously thought. Other contributing factors to the headaches; and perfecting the fundamentals of
difficult financing market and challenging negotiating due diligence and deal execution. November will be
environment – inflation, slowing demand, high input a pivotal month, but we expect savvy dealmakers
costs, compressed valuations, volatility in the equity to continue finding compelling opportunities to
markets and widely divergent valuation expectations unlock value and growth in 2024 and beyond.
– are also stabilizing somewhat. Sponsors will face too
much pressure to continue sitting on the sidelines.

KING & SPALDING 2024 M&A Outlook 17

Our Global M&A Practice

When it comes to helping our clients advance their business goals,

King & Spalding knows every transaction is significant. From complex,
high-value deals that shape markets to strategic transactions that sharpen
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l 130+ M&A lawyers in the U.S., U.K., Europe, Asia and the Middle
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sellers, and financial advisors around the globe.
l Handled over 250 M&A transactions in 2023 with sizes ranging
from ten million to multi-billion dollars; 50 deals over $1B in the
past five years.
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healthcare, real estate, transportation and logistics, financial services,
aerospace and defense, among others that frequently come into play in
our clients’ transactions.

KING & SPALDING 2024 M&A Outlook 18

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