Thoughts on future state of M&A market next 2 years

M&A activity has picked up and this is reflected in the Q1 earnings for BBs and boutiques. M&A activity will likely continue to rebound moderately before normalizing at a higher level (but lower than the 2021 M&A mania). Companies have largely realized that higher rates are here to stay and ZIRP won't be returning for a while, and have adjusted their M&A strategies to reflect that (and thus aren't waiting on the sidelines anymore). Furthermore, lots of large corporates are sitting on record piles of cash, and shareholders are expecting them to deploy that cash. Because of the high cost of capital today, stock buybacks are far less accretive compared to past levels and thus companies will likely allocate more of their cash towards M&A vs stock buybacks. On the sponsors side, PE firms are sitting on a record amount of invested capital, and even though continuation funds have taken off recently, sooner or later the sponsors are going to have to exit their investments and return capital to LPs. Despite the fundraising slowdown, PE firms are still sitting on record levels of dry powder and will face pressure to deploy that dry powder eventually.

With that being said, IMO that won't translate into a major expansion in junior headcount. From what I've anecdotally observed, a lot of firms (especially BBs) are still pretty bloated from the overhiring in 2021-2022, and are still in the process of normalizing headcount to reflect M&A activity lower than that in 2021.