DESPITE increased volatility in the interest rate environment, the expected easing in interest rates by central banks could spur activity in the mergers and acquisitions (M&A) space in 2024, said Morrison Foerster in a report released on Thursday (Jan 11).

The international law firm expects a “significant increase” in M&A activity over the course of the year, at least in South-east Asia, the US, the UK and Europe.

It attributed the pickup in activity to lower interest rates, the high volume of dry powder on the private equity (PE) or debt funding side, and the return of bank risk appetite in 2024.

Private company pricing is also reflecting the repricing that occurred in public markets in 2022, the firm noted in its 2024 global outlook.

“While interest rate cuts will provide relief to many borrowers, we still expect to see some distressed M&A and restructurings of highly leveraged businesses.”

Notably, bank underwriting appetite and the public leveraged debt markets have returned for the right borrowers. Direct lenders are also providing strong competition for banks due to their appetites and ability to provide bespoke capital solutions, including hybrid financing.

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In the South-east Asia region, the firm expects deals in the technology sector to rebound in 2024, following an overall drop in the year before. This is especially so in areas such as artificial intelligence, health tech, biotech, fintech and industrials.

Countries such as Vietnam, Indonesia and Bangladesh stand to benefit from the projected strong performance of the industrial sector, where companies continue to bolster their manufacturing and supply chain resilience.

The logistics and data centre space will continue to attract “significant investments” as digital and physical infrastructure across the region develops. Demand in the renewables sector will be sustained due to the ongoing transition to sustainable energy sources by businesses.

The firm also expects momentum for healthcare and life sciences investment to continue into 2024 in South-east Asia.

When it comes to China, it believes China-focused PE sponsors will still face difficulties in raising funds from North American-headquartered sources. Instead, they could look to pension and sovereign wealth funds from the Middle East and Singapore as a main source of new fundraising.

That being said, opportunities may arise for China-focused PE sponsors to lead the privatisations of US-listed, China-headquartered companies. They could also finance the spinoff of rest-of-world businesses by China-headquartered companies, as tensions between China and the West persist.