21st June 2024

Better business. Better community

Business Industry and Financial

Global Investment Bankers Are Cautiously Optimistic Amid Market Uncertainty

Many activities that were paused in 2023 are set to recover, with initial public offerings (IPOs) expected to return to pre-2019 levels after a spike in refinancing in debt capital markets. Improved investor sentiment in Western markets and the large number of private companies backed by venture capital (VC) are providing opportunities for the IPO market. Additionally, with high levels of dry powder available, large private-equity firms are under pressure to start investing these funds, irrespective of market conditions. This could increase the number of take-private and leveraged buyout (LBO) deals in the market. Overall, the global economy is expected to overcome most of the uncertainties that weighed it down in 2023 this year.

According to industry research, 77 percent of senior executives at various-sized investment banks and advisory firms anticipate that dealmaking opportunities in the IB industry will increase overall in 2024, leading to revenue rises. Several factors are contributing to this growth momentum, including resilient employment, growing real incomes, anticipated rate cuts and a recovery in global trade.

M&A, the leading contributor to investment-banking revenue

Our research indicates that mergers-and-acquisitions deals have been the largest contributors to IB revenues.While market uncertainty and volatility caused M&A activity to remain subdued in 2023, expected declines in the cost of capital should lead to the creation of more attractive valuation scenarios going forward. The stronger profit margins anticipated for businesses across sectors bode well for the deal pipeline in 2024.

The healthcare and chemical sectors took the lead in terms of year-over-year (YOY) growth in revenue from M&A deals in the first quarter of 2024. However, other sectors are slowly catching up. This is reflected in how banks are allocating resources. We are seeing some of the bulge-bracket banks revoking their hiring freezes on junior bankers, given signs of recovery in the market.

The recovery path ahead for M&A activity

The recovery of global M&A activity has mainly been driven by high levels of dry powder with financial sponsors and increasing foci on small to mid-size deals as well as cross-border transactions. Approximately US$2.5 trillion in dry powder was available in the market as of July 2023. Fund managers should invest this money in the market, regardless of market conditions.

Source: S&P Global Market Intelligence

Additionally, companies are looking at small to mid-size transactions, keeping in mind current market conditions and high interest rates. Small deals are not particularly affected by market volatility, and conducting a series of small transactions would help firms in their transformation journeys. As regulatory restrictions, such as those relating to competition, increase, IB firms will also look for small deals rather than large ones. Small deals enable banks to meet the strategic requirement of enhancing growth with less regulatory scrutiny.

Technology companies are expected to capitalise on lower valuations and enter deals to accelerate business synergies. Financial sponsors have also shown interest in artificial intelligence (AI) and machine learning (ML) technologies due to the increasing demand for digital transformation. The healthcare sector, in particular, has capital reserves that can be used for strategic deals. We also expect medtech (medical technology) and healthcare analytics companies to attract investor interest. Advancements in drug development and the continued need for innovative treatment and medical solutions should drive consolidation and M&A in the pharma sector.

Finally, although heightened geopolitical tensions have dampened the prospects of cross-border transactions, companies are strategically seeking growth and diversification to reduce the risks of a volatile economy. Investors are also choosing local strategic partnerships to mitigate challenges posed by domestic regulations.

The debt market’s resilience

Geopolitical tensions in 2023, coupled with multiple rate hikes, led to low DCM activity. However, with the Federal Reserve (the Fed) signalling a stabilisation of rates and potentially rate cuts, debt capital markets are reacting positively. A number of companies expect central banks to cut rates in the first half of 2024, but such cuts would not necessarily mean that funding costs would also be reduced at the same pace. This uncertainty is prompting companies to refinance their debt that is maturing in the next couple of years. US interest rates have stopped increasing to bring needed stability, improving investor sentiment and issuer confidence while enhancing refinancing activity, especially during the latter part of the fourth quarter (Q4) of 2023. The average spread on investment-grade (IG) debt fell to 111 basis points, the lowest in 2023. More than US$150 billion worth of IG bonds were issued by quarter-to-date (QTD) Q4 2023. IG spreads were at their tightest in 2023, and some borrowers were looking at de-risking portions of their funding needs for 2024, increasing refinancing activity.

Source: Press Releases, Websites and Bloomberg

Additionally, there is a shift towards private credit against the backdrop of higher banking regulation and limited balance-sheet flexibility across the banking domain. This has led to visible growth in the private-credit market, with a number of take-private and sponsor-to-sponsor transactions. The market is expected to grow to US$2.8 trillion in the next five years. Current market sentiment has resulted in the need for traditional asset managers to improve their private-credit capabilities, with a number of players, including BlackRock and Fidelity Investments, opening private-credit units to cater to this growing need. Companies with strong recurring revenue but limited earnings before interest, taxes, depreciation and amortisation (EBITDA), such as those in the technology sector, will likely find funding options through private credit more feasible than those via banks. The decline in bank lending, high levels of dry powder and the need for more funds will continue to drive the private-credit market over the coming years.

The IPO market is gaining momentum

The global IPO market has gone through significant shifts due to recent macroeconomic factors and geopolitical changes. Global IPO volumes declined 7 percent during the first quarter (Q1) of 2024, but IPO-based proceeds witnessed a rise of 7 percent YOY during the same period. Issuers and investors are gradually gaining confidence, given the backdrop of improving valuations and pricing. Momentum is building for private-equity-backed IPO exits this year, with the average deal size up 26 percent in Q1 2024 from the same period last year.The growing sense of optimism among issuers and investors suggests a shift in market conditions and a more receptive environment for companies considering going public.

Considering regional performance, IPO markets in the Americas and Europe, Middle East, India and Africa (EMEIA) are slowly recovering, while the Asia-Pacific (APAC) market is stagnant. The Americas demonstrated strong IPO performance in Q1 2024 compared with Q4 2023 and Q1 2023. The region saw 52 IPO deals during Q1 2024, with proceeds totalling US$8.4 billion, an increase of 21 percent from Q4 2023 and a significant jump of 178 percent YOY. Average deal proceeds from the top seven deals stood at more than US$500 million in Q1 2024, in contrast to only one deal in Q1 2023. The US market, specifically, which has experienced low proceeds since 2022 and an uncertain market last year, also gained momentum in Q1 2024.

However, the APAC IPO landscape experienced a downturn in the first quarter of 2024, with a total of 119 IPOs generating US$5.8 billion in proceeds. This represents a YOY decrease of 34 percent in the number of deals and 56 percent in proceeds. The downturn was especially pronounced in China and Hong Kong, where IPOs more than halved in number and proceeds shrank by nearly 70 percent. These markets have been on a downward trend in IPO deals for several years. In contrast, Japan saw a modest uptick in IPOs during the same period, buoyed by the Nikkei index reaching a record high in February.

In contrast, the EMEIA region’s IPO market kicked off 2024 on a strong note, with 116 IPOs raising US$9.5 billion in the first quarter, marking YOY increases of 40 percent in volumes and 58 percent in proceeds. This was driven by sizeable deals in Europe and India, allowing EMEIA to continue leading the global IPO market in proceeds since the fourth quarter of 2023. India, in particular, has become increasingly prominent in the IPO scene since 2019, especially in terms of the volume of public offerings.

Source: EY

As we look ahead, cautiously optimistic outlooks for investment banking and advisory business are evident, with either significant or marginal growth in revenue expected this year. Dealmakers anticipate 2024 to be a buyer-led market, and M&A is expected to be the key contributor to overall revenue, followed by debt capital markets, equity capital markets and then private capital advisory and placements.

Additionally, there will be more opportunities for both buyers and sellers as we witness new traction in M&A deals supported by sponsor-backed deals. Leveraged loans are also likely to play a major role in financing M&A deals over the next two years. As loan trading stabilises, lenders may pursue fresh prospects and back bolder underwriting frameworks.

As more sponsors turn to public equity for monetisation, we expect that late 2024 will see upticks in the number of transactions, the scale of deals and the sectors participating in the market. This will not only drive IPO deals but also boost secondary offerings, including follow-on and block trades. The current vibrant IPO market, coupled with good momentum in secondary markets and a less vigorous exit landscape, signals a new phase for private markets as they continue to be practical choices for companies that maintain realistic expectations regarding their valuations.



EY Parthenon: “M&A outlook points to gradual rebound in deal market in 2024,” Gregory Daco and Mitch Berlin, January 17, 2024.

Goldman Sachs: “Private Equity Inflection Point,” April 2024.

McKinsey & Company: “Rebound of financial services M&A: Focus on growth and capabilities,” Nadine Hussein, Fadi Najjar, Mieke Van Oostende and Andrew Zarrilli, February 29, 2024.

PitchBook: “Private Credit 2023 Outlook: More market share, higher yield. But more defaults, too,” Olivia Fishlow and Abby Latour, December 20, 2022.

PNC Insights: “PNC 2024 Outlook: Debt Capital Markets,” January 24, 2024.

S&P Global Market Intelligence: “Private Credit Investors Focus on Credit Risk,” James Mansfield and Sidiq Dawuda, February 6, 2024.