Global M&A activity decreased 36% year-on-year in the second quarter, but investment bankers and attorneys were optimistic that the stock market’s recovery would eventually restore chief executives’ dealmaking confidence.
As of June 29, Dealogic data showed that M&A declined to $732.82 billion from $1.14 trillion in the second quarter of 2022 due to high-interest rates and a debt ceiling standoff.
Global uncertainty makes M&A uneasy. Passing on a deal is easy because no one gets fired for it. “But, we all talk about the deal that never should have happened,” said Weil, Gotshal & Manges LLP corporate department head Michael Aiello.
The quarterly total was larger than $601.32 billion in acquisitions disclosed in the first quarter of 2023, giving hope to M&A market revival proponents.
Bottoming out. Companies must expand organically—especially inorganically—to compete locally and worldwide. Lazard Ltd (LAZ.N) president Raymond McGuire predicted further strategic activity.
Europe and Asia Pacific M&A sales fell 49% and 24%, respectively, while U.S. volumes fell 30% to $318.4 billion.
“People tend to look at just the previous year, but if you look at activity over a 10-year or 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 Bank of America (BAC.N) global M&A chairman Steve Baronoff.
The quarter saw pipeline operator Magellan Midstream Partners’ nearly $19 billion acquisition of natural gas-focused ONEOK Inc (OKE.N), grain trader Bunge Ltd.’s (BG.N) $17.3 billion purchase of rival Viterra Ltd., and Carrier Global Corp.’s (CARR.N) $13.2 billion purchase of Viessmann Group’s climate solutions unit.
“More deals are starting bilaterally than in a broad process.” “In a lot of cases, 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 Morgan Stanley (MS.N) global head of M&A John Collins.
The S&P 500 Index has climbed 14.5% since January. Dealmakers say companies with big shareholders that can take them privately are sometimes takeover targets.
“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 Freshfields Bruckhaus Deringer LLP co-head of U.S. M&A Ethan Klingsberg.
Investment bankers and attorneys claimed the more tough leveraged buyout climate made purchases difficult for private equity firms and contributed to the fall.
Private equity-led takeover volumes fell 59% to $196.66 billion this year.
The private equity business will change, but they must sell assets and invest. “They have to adjust valuations and accept the interest rate curve,” said Citigroup Inc. (C.N.) global co-Head of banking, capital markets & advising Manolo Falco.
Some consultants warned that the regional financial crisis could affect credit availability, although M&A was generally unaffected.
“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,” said Sullivan & Cromwell co-chair Scott Miller.
