Why 2024 will be a year of fits and starts for dealmaking on Wall Street

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

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Dealmaking is big business on Wall Street.

When companies combine, or one company buys another, it creates opportunities for investors and banks to make money by providing advice or financing the transaction.

Investors and employees often get a nice payout as well.

But over the past few years, mergers and acquisitions (M&A), have been hard to come by. Goldman Sachs reported substantial drops in revenue last year as 2023 had some of the lowest M&A activity in a decade.

Dealmaking activity has dried up as executives have contended with recession fears, decades-high interest rates and geopolitical tensions.

Still, Goldman Sachs has been the world’s top M&A adviser for seven consecutive years. The investment bank advised on 235 deals in 2023, totaling more than $670 billion. That made Goldman responsible for nearly a third of the total global M&A advisory market last year.

Stephan Feldgoise, Goldman Sachs co-head of global M&A, spoke to Before the Bell about what comes next for M&A and what we can expect to hear this earnings season.

This interview has been edited for length and clarity.

Before the Bell: You’ve rated 2021 a 10 out of 10 for M&A activity but said that 2023 was a two on that scale. Where are we now?

Stephan Feldgoise: So 2021 through the first half of 2022 was definitely a nine or a 10. But then the second half of 2022 fell off dramatically. This year started off with a number of large transactions – it feels like a four heading to a five.

But there are fits and starts to today’s market. There are weeks where you make a large number of transactions and it feels like one of the “starts.” And then there are “fits” weeks where it’s just very quiet. But I’d say we’re cautiously optimistic.

There do continue to be strengthening signals and trends – if you look at the number of $10 billion-plus transactions, we’ve had a very strong start to the year relative to history. If you track the number of transactions over $500 million for Goldman Sachs, the number of transactions overall for the market is in line with the averages from 2015 to 2019. That feels pretty good. Those were decent markets. They weren’t great, they weren’t bad.

What do the fits and starts mean? Should we be reading into these sporadic bursts of energy?

You have fits and starts because we’ve had some pretty serious risk factors at various periods – whether that be geopolitical, interest rates or certain banks having issues in their securities portfolios – all those things impact the number one driver of M&A which remains CEO confidence and board confidence.

Investors are still supportive, employees are still supportive, board and CEO confidence is the number one factor and there’s been plenty of things that have made people confident and there’s been plenty of things that, at various points in time, have tempered that confidence.

We often hear this term “green shoots” in reference to M&A. It means that there’s a bit of action beginning to peek up from the soil, but when will we see those shoots bud?

A lot of people do use that term. I go back to fits and starts with good underlying trends that momentum builds, but it’s not going to be a straight line. That’s a little different than green shoots, which are plants growing steadily through the spring that you can see, know, feel and predict.

I don’t think it’s going to be a straight line of green shoots growing. But the underlying trend, the multi-period average as we look back over time, we’re going to see that it was steadily building. But there will be periods when it feels like it takes two steps forward, one step back.

Why should people pay attention to M&A? What does it tell us about the economy and markets? 

There’s no question that M&A impacts a lot of businesses, lots of consumers in the end,…