Global mergers and acquisitions (M&A) activity experienced a significant 36 per cent year-on-year decline in the second quarter of 2023, Reuters reported. However, investment bankers and legal experts remain optimistic, citing the gradual restoration of chief executives’ confidence in dealmaking, driven by the stock market’s recovery. Despite challenges such as high-interest rates and a stand-off over the U.S. debt ceiling that kept dealmakers cautious, the increase in M&A activity during the second quarter, compared to the first quarter of 2023, provides hope for a market recovery.
According to Dealogic data as of June 29, cited by Reuters, the total value of M&A transactions dropped to $732.82 billion in the second quarter of 2023 from $1.14 trillion in the same period of 2022. The decline was attributed to global uncertainty, higher interest rates, and the U.S. debt ceiling stand-off, which made dealmakers uncomfortable. However, the second-quarter figure was higher than the first quarter of 2023, where $601.32 billion in deals were announced, indicating a positive trend in the M&A market’s recovery.
M&A volumes in the United States experienced a 30 per cent decline, totaling $318.4 billion. Meanwhile, Europe and Asia Pacific witnessed even larger declines, with volumes shrinking by 49 per cent and 24 per cent, respectively. Investment experts cited by Reuters emphasize that while the M&A market may not be as red hot as in 2021, it remains far from dormant when considering longer-term trends.
Despite the decline, several significant transactions occurred during the second quarter. These include pipeline operator Magellan Midstream Partners’ nearly $19 billion takeover of natural gas-focused ONEOK Inc, grain trader Bunge Ltd’s $17.3 billion acquisition of rival Viterra Ltd, and Carrier Global Corp’s $13.2 billion deal for the climate solutions unit of Germany’s Viessmann Group.
Challenges for Private Equity Firms
Private equity-led buyout volumes suffered a substantial 59 per cent year-on-year slump, amounting to $196.66 billion so far in 2023. Investment bankers attribute this decline to the challenging environment for leveraged buyouts, making acquisitions more difficult for private equity firms. Adjusting valuations and accepting the prevailing interest rate curve are seen as necessary steps for private equity firms to adapt to the new market conditions.
Regulatory Scrutiny and Antitrust Concerns
Regulatory scrutiny, particularly from antitrust authorities, has increased, making it harder to pull off large deals involving multinational companies. Antitrust lawyers are now involved in M&A processes at earlier stages. The U.S. Federal Trade Commission (FTC) launched challenges to block announced deals, such as Amgen Inc’s $27.8 billion acquisition of Horizon Therapeutics PLC and Illumina’s acquisition of Grail, a cancer diagnostic test maker.
(With Inputs from Reuters)
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