Dealmakers see rebound after US activity buoys global M&A volumes (updated)
29/09/2023 21:04
(Updates to include time period in paragraph 1 and quote in 3rd
last paragraph)
By Anirban Sen and Anousha Sakoui
NEW YORK, Sept 29 (Reuters) - Mergers and acquisitions
activity globally showed few signs of improvement in the third
quarter but a rebound in volumes in the United States - the
world's biggest investment banking market - gave dealmakers hope
of a sustained recovery in the near term.
The total value of M&A fell slightly to $717.4 billion
during the September quarter, according to data from Dealogic,
from $738.1 billion last year during the same period.
U.S. dealmaking contributed to a larger-than-usual share of
global activity and offset a decline in volumes in Europe and
Asia Pacific, accounting for about half of global volumes.
"My outlook is stable - we're going to continue to see a
steady flow of deals. We're not going to see the craziness that
we had in 2021. But on the other hand, I think all these
predictions of the demise of M&A are overblown," said Melissa
Sawyer, global head of M&A at law firm Sullivan & Cromwell LLP.
U.S. dealmakers advised on deals worth $356.51 billion
during the quarter - a 35% jump from the same period last year.
Deal volumes in Europe and Asia Pacific fell 31% and 9%,
respectively.
Investment bankers and M&A lawyers blamed headwinds such as
high interest rates, increased antitrust scrutiny, and a looming
U.S. federal government shutdown for the sluggish pace of
activity, but pointed out that cash-flush buyers have started to
fight through the market conditions to go after sizable targets.
This could lead to more hostile and unsolicited approaches
from well-capitalized buyers, they said, pointing to examples
like Cleveland-Cliffs Inc's CLF.N $7.3 billion bid for U.S.
Steel.
"There is a good amount of pent-up demand for M&A. In 2023,
the deals that are getting done are more like perfect fit deals.
The buyer is the right buyer for the business, and they're
paying premium multiples for it. 2024 seems to be setting up to
be more significant," said Tony Kim, co-president of investment
banking at Centerview Partners.
The financing environment for leveraged buyouts remained
challenging as central banks maintained high interest rates,
forcing private equity firms to use solutions, like earn-out
structures and contingent value rights (CVRs), to reconcile
price differences. Roark Capital's $9.55 billion buyout of
sandwich chain Subway, for instance, included an earn-out
structure.
To date, private equity deal volumes have slumped 48% to
$313.73 billion, compared to the same period last year.
"Funding conditions have stabilized and IPO (initial public
offering) markets are opening up so the sentiment is
constructive and private equity is preparing to get back to
work,” said Andre Kelleners, head of EMEA M&A at Goldman Sachs.
Deal activity driven by activist shareholders was muted as
several big-name activists reached settlements with corporate
boardrooms. Large investment banks culled staff by the thousands
as overall activity remained well below the peaks of 2021.
Dealmaking in technology, which typically accounts for the
largest share of deal volumes, has fallen 51% so far this year.
Those declines were partially offset by a 25% jump in volumes
from the healthcare sector where large pharma companies paid
rich premiums for attractive biotech targets.
"The view looking forward out of the windshield is very
different from the scene looking at the rearview mirror. It’s
very consistent with historical trends where after a boom year
like 2021, it takes about two years for the market to bottom
out, settle and find its footing - and we are seeing that," said
Naveen Nataraj, co-head of U.S. Investment Banking at Evercore
Inc EVR.N .
Cisco System Inc's $28-billion takeover of Splunk Inc
SPLK.O , GTCR LLC's $18.5 billion deal for the merchant
services business of Fidelity National Information Services
FIS.N , and Smurfit Kappa Group's SKG.I $11 billion
acquisition of U.S. rival WestRock Co WRK.N were the largest
deals of the third quarter.
ANTITRUST SCRUTINY
Dealmakers cautioned that the ever-growing complexity of the
antitrust regulation globally would force a fewer number of
mega-deals, with global volumes expected to be driven by more
deals valued between $1 billion to $10 billion in the near term.
"For years, it’s been the European regulatory process that
has been difficult to navigate. Now ... it's obviously very
difficult in the U.S., and it is much more unpredictable," said
Rob Kindler, global chair of the M&A group at Paul, Weiss,
Rifkind, Wharton & Garrison LLP.
Large private equity firms that have raised record amounts
of capital in recent years are under increasing pressure to use
those funds for dealmaking despite current rates, thus
potentially leading to a significant number of take-private
deals and debt-fueled buyouts in the near term, deal advisors
said.
To overcome recent challenges in raising debt that is used
to support acquisitions, private equity firms wrote bigger
equity checks to bankroll deals, rolled over stakes in existing
companies that were targeted by other sponsors, acquired
companies with portable debt structures, and took private
several publicly-listed companies in which they already owned
sizable stakes.
"The next two years have the potential to be peaks of M&A
exit activity for private equity compared to history. Funds need
to return money to investors,” said Eamon Brabazon, co-head of
EMEA M&A at Bank of America.
Investment bankers said lenders are starting to open up
their balance sheets as billions of dollars of hung debt are
getting sold to investors, but cautioned against expectations of
a full-blown recovery anytime soon.
"The gap between buyer and seller expectations is narrowing
– eventually it'll be close enough where they'll overcome the
headwinds that exist," said Anton Sahazizian, global head of M&A
at Moelis & Co MC.N .
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(Reporting by Anirban Sen in New York and Anousha Sakoui in
London; editing by Timothy Gardner)
((Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno; Reuters
Messaging: Signal/Telegram/Whatsapp - +1-646-705-9409))