Yearender: Dealmakers see rebound after global M&A volumes hit decade-low
21/12/2023 11:00
By Anirban Sen and Anousha Sakoui
NEW YORK, Dec 21 (Reuters) - Mergers and acquisitions
(M&A) activity fell to its lowest level in ten years globally in
2023, as high interest rates and an economic slowdown weighed on
companies' dealmaking confidence, but bankers and lawyers expect
a pick-up as conditions improve.
Total M&A volumes fell 18% to about $3 trillion, according
to the most recent data from Dealogic, the lowest since 2013
when deal volumes were at $2.8 trillion.
Dealmakers blamed high interest rates, which made it more
expensive for private equity firms and companies with low credit
ratings to raise acquisition financing. At the same time,
economic uncertainty and market volatility made it harder for
acquirers and sellers to agree on deal prices.
"We were surprised by how difficult it was to bring deals
forward in 2023. I think there will be an M&A rebound, but how
much of it actually appears in 2024 and how much of it is a
setup to 2025 remains to be seen," said Paul J. Taubman, founder
and CEO of boutique investment bank PJT Partners PJT.N .
M&A volumes in the United States - the world's largest
investment banking market - declined 8% to $1.42 trillion.
Volumes in Europe and Asia Pacific declined more sharply, by
32%and 20% respectively.
Private equity-led buyout volumes globally slumped 38% to
$433.6 billion, as financial sponsors cut back on leveraged
buyouts (LBOs) and sold fewer companies.
"At its height, private equity accounted for roughly 30% of
the deal activity, and over the last 12 months the sector has
largely been absent from deal flow," said Avinash Mehrotra,
co-head of M&A for the Americas at Goldman Sachs GS.N .
As a result, private equity firms have been distributing
capital back to their limited partners at a much lower rate than
in previous years, he said.
"The deals got more complicated, transactions got harder to
get across the finish line, and there was a bigger gap between
buyer and seller value. And all those things in past downturns
would have led to no discussions even happening. But what we've
seen is a very healthy level of corporate dialogue," said Tom
Miles, head of Americas M&A at Morgan Stanley.
During an otherwise downbeat year, a string of blockbuster
deals in the oil and gas industry propped up deal volumes, while
also boosting investment banking fees.
Exxon Mobil's XOM.N $60 billion bet on Pioneer Natural
Resources and Chevron Corp's CVX.N $53 billion acquisition of
Hess Corp ranked as the largest deals for the fourth quarter and
for the entire year as well.
Signs of a pick-up began to show at the end of the year.
Deal volumes are up 19% year-over-year in the fourth quarter,
buoyed primarily by the energy deals.
"The valuations of a number of companies are still
relatively compressed, but it's been long enough that boards are
recognizing that this is just the world that we live in now, as
opposed to the world that we'd prefer to be living in, and that
makes it easier for buyer and seller expectations to converge a
bit in the near term," said Ben Carpenter, co-head of North
America M&A at JPMorgan Chase.
LACK OF CONFIDENCE
A challenging antitrust environment also weighed on
boardroom confidence and curbed strategic appetite for
transformative mergers. Transactions worth over $5 billion fell
to 79 from 93 last year, while the number of $10 billion-plus
deals fell to 33 from 37 last year.
"These days, it takes over a year to 18 months to get deals
through - and buyers and sellers aren't interested in being hung
out that long, and really want to be compensated for the risk.
So it just makes dealmaking hard in sectors like tech right now.
That's a big reason for the fall-off," said Charles Ruck, global
chair of the corporate department at Latham & Watkins.
Investment bankers and M&A lawyers pointed out that
cross-border tie-ups have become more complicated to pull off
because of stricter and lengthier regulatory reviews in
different countries. Cross-border deal volumes globally came in
at about $844 billion, down 3% from last year.
"China obviously instead of being a growth engine is a
headwind in many sectors," said Eric Rutkoske, head of M&A at
Guggenheim Securities.
Another potential headwind for activity levels in 2024 could
be elections in different parts of the world, including in the
U.S. and India, because some companies will wait to see if the
regulatory regimes will change.
But investment bankers said corporate buyers are unlikely to
put strategic M&A planning on hold.
"The regulatory environment for deals is unlikely to be
meaningfully different under a new U.S. administration,
particularly over the first 12 months or so. I think many people
are just forging ahead, given that you can't wait around
forever," said Ihsan Essaid, co-head of global M&A at Barclays.
Shareholder activism, traditionally a big driver of M&A
activity because it pushes companies to consider dealmaking
options, is on the rise. Barry Weir, co-head of EMEA M&A at
Citigroup, said the proxy season heading into 2024 is looking
busier compared to last year.
M&A advisers said the pipeline of deals going into 2024
looks healthier compared to the same period last year.
"The pipeline right now is more robust than it was at any
point last year," said Jim Langston, co-head of U.S. M&A at law
firm Cleary Gottlieb Steen & Hamilton.
"Standing here today, the market has started to accelerate,
both in terms of confidence levels in C-suites and boardrooms as
well as the number of companies that are in active dialogue
around transactions," he said.
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(Reporting by Anirban Sen in New York and Anousha Sakoui in
London; Editing by Sonali Paul)
((Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno; Reuters
Messaging: Signal/Telegram/Whatsapp - +1-646-705-9409))