Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Global dealmaking plunges as financing market hits rock bottom

Stock Markets Sep 30, 2022 11:17AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © 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
 
C
+0.10%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+0.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DBKGn
+0.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
SCHN
-0.32%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ADBE
-0.44%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
STOR
+0.06%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

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:C).

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:JPM).

"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:ADBE) 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:STOR) Corp.

In Britain - where on Sept. 26 the pound plunged to an all-time low against the dollar - Schneider Electric (EPA:SCHN)'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:DBKGn).

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)

Global dealmaking plunges as financing market hits rock bottom
 

Related Articles

Airbus may delay some 2023 jet deliveries: sources
Airbus may delay some 2023 jet deliveries: sources By Reuters - Nov 27, 2022 2

By Tim Hepher PARIS (Reuters) - Airbus is preparing the ground for further delays to planned delivery dates of some medium-haul aircraft in 2023 even as it races to meet delivery...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email