M&A activity outlook for 2024 after termination of big deals

Amazon (AMZN) is terminating its pursuit of acquiring iRobot (IRBT), while JetBlue Airways (JBLU) calls off its merger with discount operator Spirit Airlines (SAVE). These are just two of the top M&A headlines as the market is enthusiastic about other big-name deals announced for 2024.

Barron's Reporter Jacob weighs in on the regulatory environment for M&A dealmaking.

"In the airline space, it's going to be a little bit tougher from a regulatory standpoint," Sonenshine tells Yahoo Finance. "With airlines in the US... you had JetBlue... trying to make a play for another small discount airline. They would have to buy that for $3 billion, JetBlue doesn't even have $1 billion in cash. It would have to use a lot of debt, it would be a very difficult deal to do."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: On top of the Amazon iRobot deal, JetBlue Spirit merger also facing, we know, regulatory headwinds after a judge blocked it. But we've also seen a string of deal activity to start the year, some of the largest deals so far. Synopsis acquiring Ansys, Sunoco announcing its deal to acquire NuStar, and Chesapeake merging with Southwestern Energy.

Joining us now is Barron's reporter, Jacob Sonenshine. Jacob, it is good to see you. Maybe, Jacob, just kind of-- we'll start here with setting the scene for us in 2024. When it comes to M&A, Jacob, these different moving pieces, financing costs, the election, got geopolitical conflict. Giving all that, Jake, I'm just interested to get your take, you know, where are we and how do you see the market evolving over 2024?

JACOB SONENSHINE: you know, from a macro standpoint, just from-- just when you mentioned the election and all that stuff, but from an economic standpoint, this year, whether earnings in the US disappoint or surprise to the upside, earnings on the S&P 500 are going to grow. We're getting an economy that's growing low to mid-single digits at this point. Sales are going to grow in line with that, margins are going to be fine. And bottom line, growth could be close to the double digits, somewhere around there.

As long as the market is confident in that, the economy is holding in there, and that the Fed is lowering rates, you have a cost of borrowing. If you're a buyer of a company, you have a cost of borrowing that's moving lower. And your return on a purchase with earnings looking pretty good is brightening. So you can finance that deal, you have a good string stream of profits coming. You compare that to last year, you should get growth in M&A this year after it was down last year to about $3 trillion globally.

JULIE HYMAN: All of that may be true, but if the Feds come in and block your deal, you're out of luck, right? So, Jacob, what kind of environment-- you know, and are we seeing that regulatory environment as a curb on even some of these proposals being made in the first place?

JACOB SONENSHINE: Yeah. So I think in the airline space it's going to be a little bit tougher from a regulatory standpoint. First of all, like you guys mentioned with Amazon and iRobot, the EU is known to be a little bit tougher from a regulatory standpoint in the US. With airlines in the US, you had JetBlue trying to make a play for another small discount airline. They would have to buy that for $3 billion. JetBlue doesn't even have a billion in cash. It would have to use a lot of debt. It'd be a very difficult deal to do.

And then you had, from a regulatory standpoint, the argument was, well, consumers need to have the discount segment of the market there and available for them. You can't-- you have to make sure that market is competitive. You can't have too much consolidation in that discount part of the market. So it's tough for airlines.

When it comes to pharma, it's a little bit easier. There have been some regulatory arguments made against Amgen's $28 billion purchase of Horizon. But that deal is going through. You're seeing more deals in pharma going through, because you're talking about large drugmakers that need to boost their pipelines that can pretty easily make acquisitions. And the argument in pharma and drugs is harder to make from a regulatory standpoint than airlines, where consumers need to have that discount part of the market.