Deals are back: Schneider Electric (CBOE:SU) and Bentley Systems (NASDAQ:BSY) are providing the latest lesson about the volatility that can result

After a steep decline in deal activity last year, many analysts are expecting 2024 to bring an uptick in mergers and acquisitions. Schneider Electric (CBOE:SU) and Bentley Systems (NASDAQ:BSY) are providing the latest example of the market gyrations that can occur when speculation about a fresh acquisition target emerges. 

Schneider Electric, a French industrial conglomerate, confirmed last week that it was in talks with Pennsylvania-based engineering software company Bentley Systems about a “potential strategic transaction” after reports of a deal that could be worth more than $15 billion. Schneider has moved in the past to enhance its industrial software business to better compete with rivals and is reportedly interested in merging that unit with Bentley, which would remain a public company. 

Bentley shares have surged amid the latest speculation, rising as much as 10% after news of the possible deal first began to circulate. Schneider shares, meanwhile, have fallen nearly 3%. That’s fairly typical for a merger announcement, which usually sees the target company rise while the acquiring company declines. Developments are worth monitoring, as other companies including Cadence Design Systems (NASDAQ:CDNS) and Siemens AG (CBOE:SIE) have been named in the press as also being interested in Bentley, which could suggest a possible bidding war in the future.

Both companies have reported solid results as the global economy continues to hum along. Bentley said 2023 revenues rose nearly 12% from the previous year to $1.2 billion, and it’s expecting an additional increase this year to nearly $1.4 billion. Schneider saw its revenue last year rise 5% to 35.9 billion euros ($38.4 billion), and it’s expecting growth of 6% this year. It noted in an earnings release that it believed an “ongoing review” of its portfolio was a “healthy business practice to ensure and retain the strategic focus.”

Schneider has cautioned that no deal is certain, characterizing the discussions as preliminary, while Bentley declined to comment. If a transaction doesn’t materialize, it would hardly be the first time that market excitement turns out to be wrong, or at least premature. Informatica (NYSE:INFA), a California-based software development company, saw its shares decline earlier this month after the Wall Street Journal reported that talks had stalled for an acquisition by Salesforce (NYSE:CRM). 

Still, PwC is predicting a surge in M&A activity this year amid an improvement in financial markets and pent-up demand, with more volatility to come as reports of fresh deals emerge. EY-Parthenon said its latest CEO survey showed that 52% of US CEOs were considering deal transactions over the next 12 months. 

“Don’t let this M&A upturn take you by surprise,” PwC US global deals industries leader Brian Levy wrote in a report. “It’s coming, and when it does, it won’t be like ones we have seen in the past. Deal returns will be under greater pressure, and the companies that ultimately come out on top will be those that can demonstrate strategic value, are well prepared and can move fast.”