Reduced interest rates make it easier for firms to buy other companies. That’s because acquiring firms can borrow the money needed to finance mergers and acquisitions (M&A) deals much more cheaply when rates are low. With the Federal Reserve indicating earlier this year that it’s poised to cut its benchmark interest rate three times in 2024, rates are likely headed lower.
As a result, the pace of M&A activity is likely to rise in the second half of 2024. Indeed, already in the fourth quarter, after the central bank strongly indicated that it was done raising rates, the value of M&A deals jumped 19% versus the same period a year earlier. Also importantly, lower interest rates tend to increase the value of firms that are in acquisition.
For investors who want to try to benefit from the coming surge of merger activity and merger valuations, here are three potential takeover targets to consider.
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