Global deal-making is entering a dry season as rising inflation and a stock market route has curbed the thirst of many corporate boards to expand through acquisitions.
Russia’s invasion of Ukraine in February and fears that an economic slowdown was imminent, jolted merger and acquisition (M&A) activity in the second quarter.
The value of announced deals fell 25.5 percent year-on-year to $1 trillion, according to Dealogic data.
Alison Harding said, “Companies are withdrawing from M&A in the short term as they focus more on the impact of the recession on their business. The time will come to strike a deal, but I don’t think it’s enough now.” -Jones, head of EMEA M&A, Citigroup Inc.
M&A activity in the United States fell 40 percent to $456 billion in the second quarter, while Asia Pacific was down 10 percent, DeLogic data shows.
Europe was the only region where the deal-making crash did not occur. Activity rose 6.5 percent in the quarter, driven primarily by a frenzy of private equity deals, which included a 58 billion euro takeover bid for Italian infrastructure conglomerate Atlantia.
“We’ve been nervous about the back half of the year but transactions are still happening,” said Mark Shafir, global co-head of M&A at Citigroup.
With the stock market facing constant volatility, boardrooms are wary of making expensive bets.
“A large number of megadeals and buyouts are unlikely to happen over the next few quarters. It is difficult to do M&A when companies are trading at 52-week lows,” said Mark Cooper, chief executive of US advisory firm Solomon. partner.
Cross-border transaction volume declined by 25.5 percent in the first six months of the year. The traditional flurry of US investment in Europe did not occur in the wake of the Russia-Ukraine conflict.
“When you think about the psychology of executives and their level of confidence to leap across borders, you have to take into account the level of uncertainty in the world and how it affects timing,” EMEA M&A Andre Kellners, head of Goldman Sachs Group Inc.
Acquisition financing has become more expensive for companies as central banks raise interest rates to fight inflation.
Even for those who have cash to trade or are using their shares as currency, it is difficult to agree on a price in choppy markets.
Damien Zubeck, co-head of U.S. Corporate Practice and M&A, said, “Stock market volatility is a huge headwind for strategic M&A. When you have stock market volatility, it’s hard to negotiate price and currency to stock. It is difficult to use as Freshfields Brookhaus Diringer.
In Europe, the sharp fall in the value of the euro and pound made companies vulnerable to opportunistic offers by private equity investors.
“Market dislocation provides a window of opportunity for private equity funds as valuations are eroding,” said Umberto Giacometti, co-head of Nomura’s EMEA financial sponsor group.
Mr. Giacometti said, “A lot of screening work is going on for both private companies acquisitions and stake acquisitions in public companies on listed companies. But without price adjustments, activity may not resume properly.”
He predicted that the average size of private equity deals would shrink as banks turn off the tap on financing and private credit funds become wary of signing large checks.
Going forward, dealmakers expect cross-border transactions between the United States and Europe to accelerate, due to a stronger dollar and a widening gap between valuations of US and European companies.
“With slightly higher levels of visibility than at the start of this year, you can expect capital flows to resume and pick up activity, including financing,” said Goldman’s Mr. Kelners.
But caution is warranted as companies are still trying to sever ties with Russia or limit their exposure to the region.
Citigroup’s Mr Harding-Jones said: “Customers are increasingly looking inward rather than outside.”