By Jacob Sonenshine | Barron’s

Global merger and acquisition (M&A) activity has staged a powerful resurgence in 2024, with announced deals so far totaling nearly $2.5 trillion—up 35% from the same period last year, according to the London Stock Exchange Group (LSEG). This rebound marks one of the strongest years for dealmaking since before the pandemic, driven by easing borrowing costs, robust corporate earnings, and heightened competition for next-generation technology and market share.

Lower Rates and Strong Markets Fuel Deal Boom

The recent surge in M&A is closely tied to shifting macroeconomic conditions, especially central bank interest rate policy. After the Federal Reserve’s series of rate cuts in late 2023 through 2024 and a renewed stance on economic stimulus, capital became more accessible for acquirers. Many corporates—especially in tech and industrials—found themselves with strong balance sheets and improved access to principal sources of funding. The spiking stock market, with the S&P 500 up nearly 15% year-to-date at the start of July 2024, has given companies both the confidence and transactional currency to pursue ambitious deals.

Strategic Motives: AI and Platform Expansion in Focus

Technology remains a hotbed of activity. From Salesforce’s $8 billion acquisition of Informatica to cybersecurity rollups led by Palo Alto Networks and others, large buyers are chasing smaller innovators to accelerate pathways into artificial intelligence (AI), cloud software, and analytics. The rationale: bolstering top-line growth forecasts at a time when organic expansion is slowing and disruptive new technologies are capturing boardroom attention.

The Sellers’ Edge: Premiums and Shareholder Rewards

For the sellers, today’s M&A surge is a windfall. Data shows that in most high-profile transactions, targets receive a significant share price premium—often 20-50% above prior closing levels—immediately following deal announcements. Shareholder returns spike as buyers are willing to pay up for scale, strategic assets, or next-gen capabilities.

The Buyers’ Dilemma: Post-Deal Stock Underperformance

For acquirers, however, the picture is far more complex. A comprehensive 25-year study by Trivariate Research found that larger buyers, on average, see their share prices underperform sector peers by over 1% on the first trading day after a major M&A announcement. The negative reaction reflects investor skepticism over premium prices, synergies that may not materialize, and typical integration or execution risks.

The market further distinguishes by deal structure. Acquisitions funded entirely in cash are received more favorably—average underperformance drops to just 0.5% compared to industry peers—because it demonstrates the acquirer’s financial strength and reduces concerns over dilution. Deals using stock or a mix of cash and equity see steeper declines, as investors often anticipate dilution and question the buyer’s conviction and ability to internally generate capital.

Long-Term Returns Still Disappoint Most Buyers

Short-term underperformance is only part of the story. In the two years following a deal, acquirers underperform their industry peers by nearly 6 percentage points annually, even for all-cash buyers. The more stock used, the greater the underperformance, suggesting that size and leveraged transactions tend to burden buyer share prices for years.

In 2024, the trend shows signs of modest improvement. Of 17 notable transactions tracked this year, buyers in 13 cases saw immediate share gains, some in the double-digit range. Crucially, these were all deals by smaller acquirers (in the $310 million to $1.8 billion range)—again reinforcing that large, high-profile deals struggle to unlock short- or long-term market value.

Recent Examples: Salesforce’s Informatica Deal and Union Pacific’s Mega-Bid

Two cases highlight current market attitudes:

• Union Pacific (UNP) announced an $85 billion cash-and-stock deal for Norfolk Southern—one of the largest proposed rail takeovers ever. Since the deal was outlined in July 2024, Union Pacific shares have dropped 1.4% while the Dow Jones Transportation Average rose slightly. The acquirer faces questions about the tens of billions in new debt needed to fund the cash portion, given its modest current cash balance and annual free cash flow below $10 billion.
• Salesforce (CRM), valued at $232 billion, agreed to acquire Informatica for $8 billion. Despite Salesforce’s strong cash flow and a balance sheet able to fund the deal without new borrowing, investors sent its shares down while sector ETF peers rose. Critics argue Salesforce’s serial acquisitions highlight its need to buy growth and technology externally, raising doubts about long-term integration and returns. “Salesforce has bought many companies, so it’s not as integrated versus peers,” notes Rhys Williams, CIO at Wayve Capital.

Outlook: Can Today’s M&A Cycle Break the Pattern?

While the 2024 deal environment is favorable for sellers and investment banks, history suggests that large acquirers need to choose and integrate targets more carefully to deliver shareholder value. With interest rates expected to remain relatively low and unprecedented technological change underway, the pressure is on C-suites to demonstrate that their acquisitions drive sustained revenue, cost synergies, and innovation rather than simply headline growth.

As deal sizes grow and the competitive logic becomes more complex, due diligence, integration discipline, and post-deal execution are more critical than ever. Investors would be wise to scrutinize the largest M&A events—look for clear strategic fit, manageable leverage, and credible integration plans—rather than simply chasing short-term market reactions or premiums paid.