Despite higher capital costs and regulatory scrutiny, a Teneo survey found 68% of corporate executives and top investors anticipate an increase in merger and acquisition activity in 2024. Teneo CEO Paul Keary joined Yahoo Finance Live to discuss the optimistic M&A outlook.

Keary notes easing inflation and more accessible capital should facilitate deal-making after "a sense of caution by CEOs" around macro conditions next year. While risks remain, he says companies do have access to capital and that there is "a need to make some strategic moves in the market."

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

Video Transcript

[AUDIO LOGO]

JOSH LIPTON: A new survey from Teneo showing optimism about deal activity next year. The results showing 68% of CEOs and top investors see an uptick in deals next year, despite increased regulatory pressure, higher costs of capital. Joining us now is Teneo CEO Paul Keary. Paul, it is great to see you.

PAUL KEARY: And you too

JOSH LIPTON: Thank you for being here. Let me start with that stat, Paul, because it sticks out, this, sort of, uptick in M&A. Nearly 70% expect a sizable M&A uptick next year, which is interesting because you think there's Lina Khan and the FTC, you know, ambitious, aggressive, higher cost of capital. So what explains that?

PAUL KEARY: There's a couple of things. And it's interesting that trend is common across the world, not just in the US. But the US has shown some of the highest senses of confidence.

I think there's a view that access to capital will be a little easier next year. Inflationary pressures will ease and also M&A from a defensive and offensive perspective expected next year. So there's been a lot of big trophies out there. There's a lot of assets that people covet. There's been some dulling of the M&A market this year, which I think is set to release part next year.

JOSH LIPTON: And Paul, do you delve into a little bit of what they're looking-- when they say they want more dealmaking, is it because they want to move into new markets, new technologies, they want to acquire talent?

PAUL KEARY: It is across the board, Josh. And I think what's interesting is that investors and CEOs, as they had last year in our survey, have a different view on economic optimism for 2024.

Last year, you could argue investors were right if you look at the data on the markets, S&P year over year basis. But this year, it feels like there is a sense of caution by CEOs on next year from a macroeconomic perspective. But there is a lot of dry powder, there is confidence in access to capital, and there is a need to make some strategic moves in the market next year.

JARED BLIKRE: This has been a year where artificial intelligence, AI, has been a huge theme. And I'm wondering what kind of conversations you're having with clients because AI is so vast? And it's not really new, but the way it's being used is new. And there are so many different facets of it. What are people-- what are your clients coming to you and talking about?

PAUL KEARY: This year, Jared, there's a 20-point increase year over year on AI investing, putting new AI line items into the spreadsheet for business planning into 2024 versus '22 to '23. And US is an even higher number in terms of AI investing, so the allocation of capital to future opportunities there. CEOs, however, anecdotally feel that they're being sold to a lot, the what, why they need AI, but not yet confident that it's been addressed by the market in terms of the why and the how.

How is it going to deliver consumer outcomes? How is it going to improve efficacy? How is it going to improve outcomes from a P&L perspective?

So they're building reserves on the cost side. They're going to invest next year. But I think it's unclear yet as to whether they're happy that they offer and the spread of technologies that they're clear that's going to deliver value for their customers.