Global mergers and acquisitions plunge in Q2 but dealmakers see green shoots (updated)

Horizon Therapeutics

30/06/2023 15:35

(Adds Q2 buyout figure in paragraph 14)
    By Anirban Sen and Andres Gonzalez
       NEW YORK/LONDON, June 30 (Reuters) - Global mergers and
acquisitions (M&A) activity fell 36% 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 U.S. 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  LAZ.N . 
     M&A volumes in the United States declined by 30% to $318.4
billion, while Europe and Asia Pacific volumes shrank 49% and
24% 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  BAC.N .
    Major transactions during the quarter included ONEOK Inc's
 OKE.N  nearly $19 billion takeover of Magellan Midstream
Partners, grain trader Bunge Ltd's  BG.N  $17.3 billion
acquisition of rival Viterra Ltd, and Carrier Global Corp's
 CARR.N  $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  MS.N . 
    The S&P 500 Index has risen 14.5% 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 U.S. 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% year-on-year to $196.66 billion. In the second
quarter, sponsor-led buyout volumes fell 56% 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
 C.N . 
    While the business of M&A was relatively insulated from the
impact of the regional banking crisis, some advisors warned of
potential ripple effects on broader availability of credit.
    "Those regional banks fund some middle market M&A activity,
but if there's less credit available to the middle market, or to
commercial real estate, which is heavily financed by those,
there might be a bit of a cascading effect on credit
availability," Scott Miller, co-chair of Sullivan & Cromwell.
    
    NO MEGA DEAL
    The overall value of large deals declined by more than half
from the same period last year. Not a single so-called
mega-deal, which typically refers to transactions worth over $25
billion, was signed during the quarter. 
    "This is not the kind of precipitous meltdown that say 2008
was for example. You still have a solid amount of activity and
it's down relative to extraordinarily high periods. There's
still a bunch of work out there," said Howard Ellin, an M&A
partner at Skadden, Arps, Slate, Meagher & Flom LLP. 
    Dwayne Lysaght, co-head of EMEA M&A at JPMorgan Chase, said
large deals involving companies with a presence in several
countries have become tougher to pull off due to heightened
scrutiny from different groups of regulators across the world.
Antitrust lawyers are being brought into M&A processes much
earlier than before, he added. 
    During the quarter, the U.S. Federal Trade Commission (FTC)
filed a lawsuit to block Amgen Inc's  AMGN.  $27.8 billion deal
to buy Horizon Therapeutics PLC  HZNP.O . 
    "I have not seen increased traction on the truly gigantic
deals the way we did a few years ago," said Eric Schiele, a
senior M&A partner at law firm Kirkland & Ellis. "Eventually the
industrial imperative to transact is going to outweigh the
headwinds. And when it does, if history is any guide, it's going
to do so pretty fast and pretty furiously."

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 (Reporting by Anirban Sen in New York and Andres Gonzalez in
London; Editing by Stephen Coates)
 ((Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno; Reuters
Messaging: Signal/Telegram/Whatsapp - +1-646-705-9409))