Global M&A braces for dry spell as boardrooms put expansion on hold
* Second-quarter M&A down 25.5% amid recession fears
* Interest rate hikes drive U.S. dealmaking down 40%
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* Financing drought, valuation mismatch key hurdles (Updates Friday item with IPO data)
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The value of announced deals dropped 25.5% year-on-year to
"Companies are standing back from M&A in the short term as
they are more focused on the impact of a recession on their
business. The timing for dealmaking will come but I don't think
it's quite there yet," said
M&A activity in
Proceeds from global listings were down 84% to
"We are nervous about the back half of the year but
transactions are still happening," said
The largest deal of the quarter was Broadcom Inc's (AVGO)
Others included
With stock markets facing persistent turmoil, boardrooms are wary of making expensive bets.
"We are unlikely to see a large number of megadeals and
buyouts getting done over the next couple of quarters. M&A is
hard to do when companies are trading at a 52-week low," said
Cross-border transaction volume dropped 25.5% in the first
six months of the year. A traditional flurry of U.S. investments
in
Philip Morris International Inc's (PM)
"When you think about the psychology of executives and their level of confidence to make a leap across borders, you need to take into account the level of uncertainty in the world and how that impacts timing," said Andre Kelleners, head of EMEA M&A at Goldman Sachs Group Inc. (GS)
For an interactive version of the Reuters chart showing global M&A and private equity volumes in the second quarter click here: https://tmsnrt.rs/39TsaKX
DEBT CONUNDRUM
Acquisition financing has become more expensive for companies as central banks have hiked interest rates to fight inflation.
Even those that have the cash to undertake a deal - or are using their shares as currency - find it hard to agree on price in choppy markets.
"Stock market volatility is a big headwind to strategic M&A.
When you have stock market volatility, it's tough to have value
conversations and makes it hard to use stock as currency," said
In
Buyout funds have been a major driver of global dealmaking,
generating transactions worth
"Market dislocation offers a window of opportunity to private equity funds as valuations are coming down," said Umberto Giacometti, co-head of Nomura's EMEA financial sponsors group.
"There is lots of screening work under way on listed companies for both take-private deals and stake acquisitions in public companies. But without a price adjustment, activity cannot properly resume," Giacometti said.
He predicted the average size of private equity deals will shrink as banks close the taps on financing and private credit funds become wary of signing big checks.
Going forward, dealmakers expect cross-border transactions
between
"With a slightly elevated level of visibility than what we had earlier this year, you could expect capital flows to resume and deal activity to pick up, including on the financing side," said Goldman's Kelleners.
But caution prevails as companies are still seeking to sever
their ties with
"Clients are increasingly looking inward rather than
outward," said Citigroup's (C) Harding-Jones.
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(Reporting by