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Global deal volumes are at their lowest point in a decade as high interest rates stifle private equity activity and a tougher antitrust environment prevents companies from chasing rivals.
The value of M&A deals announced in the first nine months of this year was $2 trillion, the lowest level since 2013 and down 28% from the same period in 2022, according to data from London Stock Exchange Group.
The decline was particularly pronounced for large transactions valued at $10 billion or more, which fell 42% in the first nine months of this year compared with the same period last year.
The year got off to a slow start, with third-quarter transaction volume of $616 million, the worst quarter since 2012.
U.S. banks are tightening spending as M&A activity slows from its post-pandemic frenzy in 2021. Global investment banking fees fell 12% year-on-year to US$76 billion, with third-quarter fees at the lowest quarterly level since the beginning of the year. 2016.
Three potentially blockbuster deals announced since early September have raised hopes among bankers and lawyers for a market recovery as uncertainty about the economic outlook begins to clear.
Bill Curtin, global head of M&A, said: “In the last two weeks, I’ve had calls from large (strategic bidders) that are considering multi-billion dollar deals in their industries, and those calls were six to six times Not received 12 months ago.” Hogan Lovells.
Last week, US technology company Cisco agreed to its largest-ever acquisition, acquiring US software maker Splunk for US$28 billion, while Norwegian classified advertising company Adevinta confirmed that it had received non-binding acquisition intentions from private equity firms Permira and Blackstone. This increased its enterprise value, including debt, to about $14 billion.
Earlier this month, two of the world’s largest packaging companies – America’s WestRock and Ireland’s Smurfit Kappa – formed a partnership to create a global group worth nearly $20 billion.
Jan Weber, head of M&A for Europe, the Middle East and Africa, said: “Overall, the board feels they have dealt with the challenges of the past year and a half and the focus is now on how to remain competitive over the next five to 10 years. and relevance.” Morgan Stanley Africa.
But dealmakers warned they did not expect a significant pickup in economic activity. This is the second consecutive year of double-digit declines in global mergers and acquisitions, the first since the 2008-2009 financial crisis.
“It’s hard to see any one major driver driving the slew of upcoming M&A activity. While momentum is building, deals in the $1 billion to $5 billion segment will be the backbone of the high-end market,” J.P. Morgan EMEA said Dwayne Lysaght, co-head of M&A. “People are still relatively introverted.”
Rising interest rates and a tighter regulatory environment also pose challenges for a quick rebound.
Higher interest rates push up the cost of borrowing to finance acquisitions. This has particularly affected private equity buyers, the engine of mergers and acquisitions in recent years.
Krishna Veeraraghavan, partner at Paul Weiss, said: “Private equity activity levels remain down, primarily due to the debt financing market and funding costs remaining high, certainly compared to previous years when sponsor activity was much higher.”
So far this year, PE transactions have totaled US$393 billion, down 41% from the same period last year.
Antitrust regulators’ tougher approach to acquisitions has also deterred potential buyers. Microsoft’s $75 billion acquisition of Activision Blizzard was initially blocked by Britain’s competition watchdog, which approved the deal only after significantly changing the terms, while in the U.S. the Federal Trade Commission has targeted private equity firms. A series of acquisitions filed antitrust lawsuits.
“Despite the negative attitude of some regulators, most deals are still being approved,” said Frank Aquila, senior M&A partner at Sullivan & Cromwell. But he added that obtaining the necessary antitrust approvals remains a challenge, as does financing.
“The credit crunch has led many buyers to increasingly tap private debt markets,” he said. That makes it more difficult to close the largest deals, as assembling such a large debt package is trickier.
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