Backlogged M&A pipeline will burst in 2024
20/12/2023 06:56
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Jeffrey Goldfarb
NEW YORK, Dec 19 (Reuters Breakingviews) - Investment
bankers ordered back to the office in 2023 could just as easily
have twiddled their thumbs at home. In 2024, however, they
should be able to start accumulating frequent-flyer miles again,
as a growing list of deals sketched on paper finally get put
into action.
The slowdown in M&A activity has darkened the mood of
usually chipper financial advisers. Even mega-mergers unveiled
by oil giants Exxon Mobil XOM.N and Chevron CVX.N in the
fourth quarter, worth a combined $113 billion, haven’t boosted
spirits much. Globally, companies notched $2.6 trillion of deals
by the end of November, putting volume on track for the lowest
full-year total since 2014 and well below 2021’s $5.7 trillion
peak.
It’s no wonder deal consiglieri have been
uncharacteristically cautious. Jim Esposito, the co-head of
global banking and markets at Goldman Sachs GS.N , recently
told Reuters he expects M&A to be a “little bit less robust”
over the medium term. Subdued CEO confidence levels back him up.
At a certain point, however, pressure simply squeezes too
hard. In the 40 years LSEG has kept records, the value of
mergers and acquisitions has never dropped three years in a row.
Moreover, deal volume from 2014 to 2022 averaged 4.5% of
worldwide listed equity value without ever dipping below 3%; in
2023, it was 2.4%. A reversion to the mean would yield some $4.7
trillion of deals.
More practically, with the U.S. Federal Reserve ending its
cycle of rapidly raising interest rates, capital is easier to
come by and its cost easier to assess. A coinciding recovery in
public stock valuations makes equity a more valuable currency
with which to shop. And dealmakers have had time to adjust to
the new normal of aggressive trustbusting, both in terms of its
legal limitations and the expense involved. Microsoft’s MSFT.O
ability to overcome regulatory opposition to owning Activision
Blizzard, for one, may embolden other hesitant acquirers to dust
off shelved strategies.
This stability should help narrow the previously yawning gap
in valuation perspectives held by sellers and buyers. An
abundance of cash doesn’t hurt either. Members of the S&P 500
Index .SPX – excluding those in finance, utilities, property
and transportation – were sitting on some $1.8 trillion of it,
the same as at the end of 2021, according to S&P Dow Jones
Indices. The clock is also ticking for buyout firms and their
record $2.5 trillion of firepower.
There’s also some strategic urgency to spend. Governments
pursuing decarbonization and supply-chain restructuring should
ignite investor enthusiasm in those trending areas. Striking
deals in 2024 will require extra courage and creativity, but
there’s no shortage of inspiration.
- This is a Breakingviews prediction for 2024. To see more
of our predictions, click here
Follow @jgfarb on X
CONTEXT NEWS
Chevron said on Oct. 23 that it had agreed to buy rival Hess
for $53 billion, following an Oct. 11 announcement from Exxon
Mobil that it was acquiring Pioneer Natural Resources for about
$60 billion. They were the year’s two biggest M&A deals of 2023,
as of Dec. 5.
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Graphic: Mergers-to-market-cap is at a decade low
Mergers-to-market-cap is at a decade low https://tmsnrt.rs/4anyJjF
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(Editing by Jonathan Guilford and Aditya Sriwatsav)
((For previous columns by the author, Reuters customers can
click on GOLDFARB/
jeffrey.goldfarb@thomsonreuters.com; Reuters Messaging:
jeffrey.goldfarb.thomsonreuters.com@reuters.net))