The mergers and acquisitions market was one sector in 2023 that was not as eventful as the rest of the market, squaring off against slowdowns and a tougher regulatory environment. While signs of economic recovery are on the horizon, future M&A activity may still be dampened by looming economic headwinds.

Headline Venture Partner Kamran Ansari joins Yahoo Finance to discuss what M&A activity could look like going forward into 2024.

"As a venture investor, and if you're on the board of one of these companies... you have multiple paths to exit: you can do an IPO, M&A, you could do a recap of a private equity firm," Ansari explains. "At this point, the corporate M&A route is probably one of the least desirable, just because of the fact... it could take forever. There's a lot of risk, lack of predictability and the time and cost, you might be stuck in a process for 12, 18, 24 months and not have it work out."

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 Nicholas Jacobino.

Video Transcript

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- There is some optimism around a comeback year for deal making. According to a recent KPMG survey, 2/3 of M&A decision makers expect more deals this year, compared with 2023. But our next guest says there are some wrinkles still left to iron out. Joining us now is Kamran Ansari, venture partner at Headline.

Kamran, it's good to see you again. So when we talk about M&A here, we've talked a lot here about some of the regulatory obstacles. But maybe there are some others as well to the floodgates opening this year. What's tops on your list?

KAMRAN ANSARI: Sure. I mean, look, it's been a tough year for M&A in '23. It was down about 17% globally to 2.9 trillion from the year 2022. And M&A stands for Mergers and Acquisitions, it might as well stood for meager and absent because there are very few deals, and particularly in the tech sector, smaller deals notwithstanding the largest deal that was announced at the end of the year that was Cisco attempting to buy Splunk which hasn't closed yet.

But regulatory is the biggest issue. I think it lacks, it creates a lack of predictability. And the regulatory scheme has gotten even more complicated now that you have four, five, six bodies you have to go through not just the US. In the US, you have both DOJ and FTC, and then you have the UK with Brexit, EU, in some cases China. I saw a deal where they had to go through the Saudi Arabia antitrust group.

So depending on how many countries you are operating in, and for most tech companies it's going to be probably 50 or 100 countries that they're in, you're going to have to go through a lot of regulatory hurdles to have a deal go through. Which is why you're seeing mainly private equity buyers in the market in the tech space.

- And Kamran, I wonder if another issue is just how long it can take to get these deals done. I mean, you think about Microsoft, and activision, [? Cameron ?] or Broadcom, VMware, I mean, these deals can take years at this point. I wonder how many times you might, a CEO is thinking, a deal makes sense but then starts to think through how long it's going to take to get this thing over the finish line just says, it's just not worth it.

KAMRAN ANSARI: Absolutely. Look, I mean, as a venture investor, and if you're on the board of one of these companies if you're a founder, you have multiple paths for exit. You can do an IPO, you can do M&A. You can do a recap with a private equity firm. And at this point, the corporate M&A route is probably one of the least desirable, just because of the fact that like you're saying, it could take forever. There's a lot of risk, it lacks predictability. And the time and cost, I mean, you might be stuck in a process for 12, 18, 24 months, and then not have it work out.

And I've been in that movie where you go down the road at a company called Billie, which Procter Gamble tried to buy. We went in the process for probably 12, 18 months before the government said they couldn't, and then schick, another buyer was able to come in and buy it. So we weren't exactly sure why one was allowed to and one wasn't it's a bit of a parlor game to figure out exactly what's going on. But that gives you pause, and so you think, well, if there's a private equity buyer or a financial buyer that can come in and give us a similar return with far less risk in terms of closing, that's a better outcome.

And that's why the private equity guys have been cleaning up on the public markets buying all the good software companies that they could afford between that $1 and $10 billion range. But I think that's going to slow down too, because all the best ones have been picked off and now the ones that are left are the larger ones that are probably too big to buy unless you get a big consortium together.