Why Are Valuations at Near Record Highs While M&A Activity Declines?
Why Are Valuations at Near Record Highs While M&A Activity Declines?
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Why would M&A activity be the driving catalyst behind whether or not a business has future growth/profitability prospects?
M&A doesn’t create growth, but it’s often a signal of where capital believes there is growth. If no one’s buying, even with record valuations, that’s a red flag. It can suggest buyers don’t buy the story or can’t justify the risk. In contrast, active M&A is often a vote of confidence in future cash flows.
The valuations themselves are also a signal of where capital believes there is growth. Multiples will expand if future growth prospects increase and capital piles into an asset class/sector following that belief. I would argue that M&A activity is less of a standalone growth indicator (particularly when you separate the different reasons for M&A at the strategic level) and more of a symptom of change in regulatory appetite. For example, under the previous admin the lack of M&A wasn't because there wasn't growth in the affected sectors, but because regulators were taking the scalps of any attempted large M&A deals e.g. Adobe/Figma.
Is this true across industries?
I’ve heard healthcare and pharm valuations are not too hot rn, but judging by your name you already know this.
Lots of action in FIG m&a atm.
With the exception of a few industries, the broader question still stands.
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