Dive Brief:

• Finance chiefs marshaling their plans for 2024 are looking to emerging technologies, digital transformation and strategic M&A deals to help them boost growth as they continue to navigate a challenging macroeconomic environment, according to a quarterly survey by Big Four accounting firm Deloitte.  
• Eighty percent of CFOs said they plan to integrate more automation or digital technologies into their operations in 2024, while approximately one-third of finance chiefs said M&A would be a significant part of their growth strategy this year, Deloitte’s Q4 CFO Signals survey found. This comes as they continue to face pressing macroeconomic challenges; inflation, interest rates or liquidity impact was the top factor CFOs pointed to as something that could potentially impact their organizations’ financial performance this year, the survey of 124 finance chiefs found.  
• However, there is some “pent up demand” in the M&A space with companies continuing to evaluate deals, but not moving forward on those deals in 2023, said Steve Gallucci, national managing partner for Deloitte’s U.S. CFO Program. “I think you’ll continue to see interest in the M&A market, and I think companies are becoming more creative in it, and in how those deals get executed,” he said in an interview. 

Dive Insight:

Finance leaders are evaluating M&A’s role in their future strategies following a slump in deals in 2023, due in part to rising interest rates. 

The Federal Reserve has hiked interest rates to between 5.25% and 5.5% from near-zero since March 2022 in its bid to dampen inflation, and rising rates have contributed to a slowdown in M&A activity. Dealmakers faced their “most prolonged challenges” over the past two years since the 2008 financial crisis, according to a report by Boston Consulting Group.

Many CFOs are leery to access debt or equity markets with rates at their current high, meaning “the financing of these transactions continue to be a challenge,” Gallucci said. 

This is leading CFOs to take a different approach to M&A in the new year: 30% of top financial leaders are looking toward non-traditional structures including joint ventures or strategic partnerships as ways to finalize deals in 2024. Forty-six percent of finance chiefs, moreover, stated M&A would not represent a significant part of their strategies in 2024, the survey found.

Deloitte’s Q4 survey was conducted between Nov. 6 and Nov. 22, before the Fed made its decision in December to hold rates steady and signaled potential cuts could be coming in the new year, CFO Dive previously reported. Finance chiefs have reported more optimism in light of the Fed’s most recent decision, with their view on business prospects brightening.

“I think there is some hope that the capitol markets will thaw a bit,” Gallucci said. “There’s some hope that maybe rates have peaked and rates may return to more, say historically affordable levels, and with any luck, I think that that you’ll see the M&A market pick up at a greater pace.”

CFOs are still facing an uncertain environment, however, with geopolitics and macroeconomics rounding out the list of top three factors that could impact company performance, Deloitte found, leading to some fluidity in how M&A could come into play. Just over half of CFOs (51%) estimate that 1% to 10% of their growth in the next three years would come from M&A, while 19% estimated M&A could generate 11% to 50% of their growth in that period, according to the survey.

Finance chiefs are also looking to emerging technologies such as generative AI and automation to help them navigate these looming challenges. More than three-quarters of CFOs expect digital transformation to play a greater role in their companies’ strategies in 2024, while 80% plan to embed more automation and technologies into their operations this year, according to the survey.

Most CFOs also expect to use these technologies to aid, rather than replace, existing staff, according to Deloitte; while 65% plan to automate processes previously done by humans, 81% of CFOs are also planning to integrate automation and emerging technologies in ways that enable their talent to focus on higher-value activities.

Finance chiefs are still facing a tight labor market in 2024 as well as an ongoing shortage of accounting talent, both of which come as the role of the finance function shifts. Historically, finance teams were built out by individuals with strong core accounting skills in areas like tax, risk management or controllership, but with the dawn of new technologies like generative AI, “there’ll be more and more automation of those types of processes,” Gallucci said.

“You’re going have a pivoting or redeployment of talent, and that could mean rescaling, upskilling and...bringing in different types of skills that they don’t currently have,” he said.

The continued buzz around generative AI could also have an impact on the M&A market, CFO Dive previously reported, as brightening economic prospects put companies in better positions to make strategic investments in new technologies. As companies become “more sophisticated” with the data and assets they have access to, AI could also lead to a shift in how companies approach dealmaking, Gallucci said — but it’s important to keep in mind the technology is still in its early innings.

“I don’t know that we have great examples of the impact that technology and AI have had on M&A strategy, other than kind of the overall disruptive nature of what’s happening and how that is going to force CFOs to…look at acquiring skill sets, acquiring or getting into new markets,” he said.