NEW YORK/LONDON- Global mergers and acquisitions (M&A) activity fell 36 percent year-on-year in the second quarter, but investment bankers and lawyers expressed optimism that the stock market’s recovery will gradually restore chief executives’ dealmaking confidence.
The total value of M&A fell to $732.82 billion in the second quarter of 2023 from $1.14 trillion in the second quarter of 2022, according to Dealogic data as of June 29, as high interest rates and a stand-off over the US debt ceiling kept dealmakers on edge.
“Global uncertainty is what is impacting M&A most – it just makes people uncomfortable.
It’s easier to say, I’ll pass on a deal – nobody gets fired for passing on a deal. But, we all talk about the deal that never should have happened,” said Michael Aiello, chairman of the corporate department of law firm Weil, Gotshal & Manges LLP.
The quarterly tally was higher than the first quarter of 2023, when $601.32 billion in deals was announced, giving grounds for optimism to those who argue the recovery in the M&A market has started.
“We are bottoming out. In order for companies to continue to compete locally and globally they will have to grow organically, especially inorganically. The market will see an increase in strategic activity,” said Raymond McGuire, president of investment bank Lazard Ltd
M&A volumes in the United States declined by 30 percent to $318.4 billion, while Europe and Asia Pacific volumes shrank 49 percent and 24 percent respectively.
“People tend to look at just the previous year, but if you look at activity over a 10-year period or a 20-year period, we’re in an M&A environment that’s not red hot like it was in 2021, but it’s by no means a moribund M&A market,” said Steve Baronoff, chairman of global M&A at Bank of America
Major transactions during the quarter included ONEOK Inc’s nearly $19 billion takeover of Magellan Midstream Partners, grain trader Bunge Ltd’s $17.3 billion acquisition of rival Viterra Ltd, and Carrier Global Corp’s $13.2 billion deal for the climate solutions unit of Germany’s Viessmann Group.
“More deals right now are starting more bilaterally and less as part of a broad process. In a lot of cases, what you’re seeing is parties will begin to have discussions and then banks on the sell side will work with their client to kind of create a process around that lead bidder,” said John Collins, global head of M&A at Morgan Stanley
The S&P 500 Index has risen 14.5 percent since the start of the year. Shares of companies that have lagged in the market recovery have sometimes become acquisition targets, especially when they have major shareholders that can take them private, dealmakers say.
“Over the next six months, there’ll be a lot of share buybacks and a lot of controlling shareholders proposing buyouts of their publicly listed subsidiaries — both are indicators of beliefs that markets will be stronger by this time next year, and neither typically require extraordinary financing,” said Ethan Klingsberg, co-head of US M&A at Freshfields Bruckhaus Deringer LLP.
Investment bankers and lawyers said the more challenging environment for leveraged buyouts made acquisitions difficult for private equity firms and contributed to the slump in activity.
So far this year, private equity-led buyout volumes have slumped 59 percent year-on-year to $196.66 billion. In the second quarter, sponsor-led buyout volumes fell 56 percent to $110.55 billion.
“The private equity business won’t be the same as before, but they must demonstrate that they are selling assets and investing. They have to adjust valuations and accept that the interest rate curve is what it is,” said Manolo Falco, global co-Head of banking, capital markets & advisory at Citigroup Inc – Reuters
