On March 10, 2023, Silicon Valley Bank collapsed. It was the third bank failure in the US during that month and the second largest in the country’s history. Nine days later, on the other side of the Atlantic, the Swiss government-orchestrated take-over of Credit Suisse by UBS was announced to avoid the former’s bankruptcy, then ranking 19 amongst Europe’s top banks. This came only a few weeks after the shoot down of Chinese high-altitude balloons over US territory and the first anniversary of Russia’s invasion into mainland Ukraine.

This all occurred in the midst of a period of Western central banks fighting rising inflation by persistently increasing interest rates. Between January and March 2023, global mergers and acquisitions activities slumped by 50% marking the weakest first quarter in a decade. 2023 finished with an aggregated global deal value well below the prior ten years’ average. The two regions most heavily affected by this downturn were Europe followed by the US.

Despite this downturn, cross border deals still made up roughly 35% of the global M&A market as a whole. Roughly a third of these deals was trans-Atlantic, and below are key reasons why this share can be expected to rise.

Technological innovation has been one of the traditional key drivers for M&A. In the current decade it has become apparent that artificial intelligence (AI) has the potential to reshape entire industries. In the arena of global tech deals, Europe has been the volume frontrunner for the last three consecutive years, outpacing the US whilst the latter has remained the undisputed heavyweight in terms of aggregate transaction value. The two regions combined account for roughly 75% of the global tech deal market and also have eight of the top 10 most innovative economies in the world.

Whilst many tech transactions are domestic, this segment also generates a steady trans-Atlantic deal flow. For example, 2023 has seen large cap deals such as SAP’s sale of its Qualtrics majority stake to CPPIC and Silver Lake with the latter having also increased its stake in Germany’s Software AG in a deal valued at USD 2.6 bn. Similar developments have been seen in the bio-tech sector where, for instance, US healthcare company Ironwood Pharmaceuticals acquired Swiss biotech company VectivBio for close to USD 1.2bn.

Further, the surge towards climate-friendly tech solutions has gained impressive momentum. Here, Europe is clearly leading the crowd in terms of implementing comprehensive decarbonisation strategies as is demonstrated by the fact that twelve out of the twenty top-scoring economies in the 2024 Climate Change Performance Index (CCPI) are on the continent. Whilst still performing low in the CCPI ranking, the US saw both governmental and private initiatives having a significant positive impact in this field. America’s massive new green subsidies, including those of the Inflation Reduction Act (IRA), have turned out to be a relevant factor for attracting and structuring global investments in lower carbon sectors such as e-mobility and renewables.

Beyond that many US corporates and other investors are committed and actively contributing to the net-zero agenda. This creates opportunities for significant cross-Atlantic M&A transactions such as the recent acquisition of Viessmann Climate Solutions by Carrier Global for EUR 12 bn, forming a world leader in eco-friendly HVAC-solutions.

In the wider scheme of things, environmental, social and corporate governance (ESG) considerations have shot to prominence. Legislative initiatives, such as the German Supply Chain Act (LKSG), increasing shareholder activism in the form of ESG proposals in recent US and European proxy seasons, as well as changing consumer demands have resulted in accumulating pressure on market participants to incorporate ESG into their strategic approach. In addition, „soft factors“ have not only become an important aspect for talent recruitment but also for the overall societal perception of enterprises.

This all contributes to the trend that targets that can plausibly demonstrate to be at the forefront of ESG developments are generally able to achieve higher valuations from acquirors. And in this regard many European and US organisations are recognized to be ahead of competitors from other regions.

Another booster effect for trans-Atlantic dealmaking has been created by recent regulatory agency activities. In July 2023 the Foreign Subsidies Regulation (FSR) has come into effect. It established a new EU-wide regime aimed at combating distortions of competition caused by foreign financial contributions. The underlying concept is very comprehensive. It captures subsidies, grants, loans, tax incentives, R&D funding as well as government contracts and concessions. Deals involving non-EU investors with more than EUR 500m European turnover may therefore come under scrutiny.

This comes on top of already existing national foreign direct investment control regimes that have been substantially proliferated and invigorated across Europe in recent years. In addition, at the end of January 2024, the European Commission launched a public consultation on a prospective outbound screening tool. This would follow in the footsteps of the US. After the tightening of the CFIUS inbound foreign investment regime and the enactment of the CHIPS and Science Act of 2022, US President Biden also signed the „reverse CFIUS“ executive order that outlines a new outbound foreign investment regime.

These measures all aim at stricter regulation of investments in critical sectors or technologies not only by certain players from but also in countries of concern. In practice, this will be a further inhibiting factor for investments and transactions by European and US players with, in particular, Chinese involvement. Such transactions had already been dropping significantly due to the pandemic as well as increasing China-scepticism in the West, providing more room for US and European interaction.

Geopolitical tensions have brought about yet another, though indirect, stimulus for trans-Atlantic M&A activity. The cascade of sanctions against Russia following its invasion of Ukraine directly resulted in a massive Western exit of operations. However, the de-facto elimination of Russia, and to some extent Ukraine, as the commodities supplier of Western economies required market participants in heavily affected industries to look out for alternatives and to re-arrange business activities including by way of forging new alliances.

In 2023 this may have contributed to US agribusiness giant Bunge’s business combination with Netherlands-based Viterra, Irish corrugated paper producer Smurfit Kappa’s merger with Georgia-headquartered WestRock, as well as Turkish Arcelik’s entering into an extensive cooperation arrangement with Whirlpool in the white goods business. In each case the new partners have reached enhanced combined horsepower levels that are presumably sufficient to have a lasting impact on their respective global markets going forward.

With international tensions on the rise and an accelerated swing from globalisation to block-building and „friend-shoring“, it is quite likely that 2024 will see similar developments.

Finally, macroeconomic indicators are also pushing towards higher trans-Atlantic deal levels. HCPI for the Eurozone has come down from 8.6% in January 2023 to 2.8% in January 2024. Similarly, within the same period inflation in the US dropped from 6.4% to 3.1%. Consequently, both the Federal Reserve and ECB have stopped increasing interest rates and a sequence of downward steps is widely expected for 2024 that will drive the ability to price assets and secure funding. This coincides with private equity on the one hand seeing the need for action in light of portfolios totalling twice the number of all public companies having matured during the pandemic and on the other hand holding record amounts in dry powder, the bulk of which in the US and Europe.

Consequently, many ingredients are there for a boom in the trans-Atlantic deal market. Still, 2024 again is a time for choosing in the EU, the UK and the US. Let’s hope for a wise choice.