Global dealmaking plunges as financing market hits rock bottom

global-dealmaking-plunges-as-financing-market-hits-rock-bottom

Investing.com - Financial Markets Worldwide

Please try another search

Stock Markets 25 minutes ago (Sep 30, 2022 03:06AM ET)

2/2

Global dealmaking plunges as financing market hits rock bottom © Reuters. FILE PHOTO: The logo of Schneider Electric is seen outside a company building in Nantes, France, September 20, 2022. REUTERS/Stephane Mahe

2/2

By Anirban Sen, Pamela Barbaglia and Abigail Summerville

NEW YORK/LONDON (Reuters) – Global M&A shrank for the third consecutive quarter as rising interest rates forced lenders to pull back from financing large deals and the soaring dollar failed to spur U.S. companies into snapping up foreign targets amid persisting geopolitical tensions.

A steep fall in large private-equity buyouts contributed to the slowdown in global dealmaking, with third-quarter activity dropping 54% to $716.62 billion from $1.56 trillion in the same period last year, according to Dealogic data.

Dealmakers are facing resistance when they pitch deals to their clients as annual volumes have so far lost 33%, with $2.97 trillion of announced deals this year.

“The backup in the leveraged finance market along with the lengthened timeline of regulatory reviews for many transactions has had an impact on dealmaking,” said Cary Kochman, global co-head of M&A at Citigroup Inc (NYSE:).

M&A volumes in the United States plunged by nearly 63% in the third quarter to $255.89 billion as the rising cost of debt forced companies to postpone their pursuit of transformative buyouts.

Plagued by spiraling inflation, European M&A activity suffered a 42% contraction in the third quarter while Asia-Pacific was down 52%, according to Dealogic.

“In today’s markets, most banks don’t feel comfortable underwriting a financing package of 3 to 4 billion euros for a private equity deal in Europe,” said Guillermo Baygual, co-head of EMEA M&A at JPMorgan (NYSE:).

“Getting deals done takes much longer. The focus is purely on high-quality assets, especially in resilient industries such as infrastructure,” he said.

Wall Street banks had to stomach a loss of roughly $700 million linked to the underwriting of the $16.5 billion leveraged buyout of Citrix.

As the environment for dealmaking has deteriorated this year, a number of corporate buyers have chosen to walk away from earlier handshake agreements while others have postponed large buyouts altogether.

“I don’t think we’ve hit the bottom yet. Today’s market is just all over the place and people are still a little bit spooked,” said Melissa Sawyer, global head of the M&A group at Sullivan & Cromwell LLP.

Still, some large deals were signed during the quarter.

Notable transactions included Adobe (NASDAQ:) Inc’s $20 billion acquisition of design software company Figma and Oak Street’s $14 billion take-private deal for real estate investment trust Store Capital (NYSE:) Corp.

In Britain – where on Sept. 26 the pound plunged to an all-time low against the dollar – Schneider Electric (EPA:)’s 9.5 billion-pound proposed takeover of British software firm Aveva was a rare attempt to revamp activity in Europe’s biggest M&A market.

For an interactive graphic, click here:

CURRENCY DISLOCATION

While valuations are sinking, U.S. buyers have so far taken a cautious stance on doing deals overseas and making currency-driven bets amid concerns over the war in Ukraine and Europe’s energy crisis.

“Currency dislocation can create opportunism. But if you’re a U.S. buyer you also need to look at the long-term value creation thesis and right now you won’t get any upside from your target’s sterling earnings which have been weakened by the latest currency fluctuations,” said Dwayne Lysaght, co-head of EMEA M&A at JPMorgan.

Corporate confidence in markets being supportive of dealmaking – widely seen as the leading indicator for M&A activity – has plummeted as a long-lasting recession is looming.

“You have a whole generation of people who haven’t seen interest rates rise this precipitously and no one really knows where it will stop. That could have a huge impact, not just on valuations, but also on the underlying economy,” said Matthew Abbott, global co-chair of the M&A group at Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Going forward dealmakers expect more domestic tie-ups, mostly funded by stock, to help companies withstand the storm.

“As a reaction to macroeconomic pressures, some large all-stock mergers will be certainly under consideration as a way to gain efficiencies and tackle sluggish top-line growth and inflation in the cost base. The rationale for dealmaking will rely on the ability to take out costs and address operational overlap,” said Derek Shakespeare, chairman of EMEA M&A at Deutsche Bank (ETR:).

Meanwhile, some companies could pursue hostile deals if boardrooms are not willing to play ball.

“On the public M&A side, (proactive outreaches) may lead to some more aggressive or hostile activity where buyers don’t take no for an answer and decide to go directly to the shareholders,” said Marc-Anthony Hourihan, global M&A co-head at UBS.

Yet deals have to go through a longer gestation period due to increased antitrust scrutiny, especially in sectors such as Big Tech.

Lengthy regulatory reviews have pressured buyers to offer so-called reverse break-up fees they would need to pay if they were unable to consummate the deal.

“Reverse break-up fees are a contractual technique that we’re using to help people overcome their fear of wacky and unpredictable outcomes from the regulators,” said Sawyer of Sullivan & Cromwell.

($1 = 0.9033 pound)

Related Articles

Toyota Motor lowers October output target by about 50,000 vehicles

Toyota Motor lowers October output target by about 50,000 vehicles By Reuters – Sep 30, 2022

TOKYO (Reuters) – Toyota Motor (NYSE:TM) Corp on Friday lowered its October production target by about 50,000 to about 750,000 vehicles due to a shortage of chips. The…

Japan to give Micron Tech up to $320 million to boost Hiroshima chip output

Japan to give Micron Tech up to $320 million to boost Hiroshima chip output By Reuters – Sep 30, 2022

TOKYO (Reuters) -Japan will give Micron Technology Inc (NASDAQ:MU) a subsidy of up to 46.5 billion yen ($320 million), the industry ministry said on Friday, so it can make…

Pizza company DP Eurasia posts H1 sales growth

Pizza company DP Eurasia posts H1 sales growth By Reuters – Sep 30, 2022

(Reuters) – DP Eurasia, which runs the Domino’s Pizza (NYSE:DPZ) brand in Turkey and Russia, said on Friday its sales jumped 66% in the first six months of the year, helped by…

Related Articles

Responses

Your email address will not be published. Required fields are marked *