Some of the world's top investment bankers said on Wednesday that a drop in corporate dealmaking in 2023 sets the stage for a pick-up in activity once uncertainty around the global economy, geopolitical conflicts and regulatory hurdles subsides.
Global mergers and acquisitions (M&A) totaled $2 trillion in the first nine months of this year, down 27% from a year ago to their lowest level since 2013, according to LSEG data. This has fueled soul-searching among investment bankers about the prospects for their business.
"CEOs and corporate boards do not need to have a very clear picture of what the future will look like, but they need a degree of stability," Goldman Sachs Group Inc global M&A co-head Stephan Feldgoise said at a Reuters NEXT conference panel. "I'm reasonably bullish that this will return, but obviously it will be in fits and starts."
Uncertainty over the Federal Reserve raising interest rates further to fight inflation, the conflicts in the Middle East and Ukraine, concerns about a potential economic slowdown and growing hostility among antitrust regulators to big deals have all weighed on the M&A market.
"You can see why some companies are saying, if I don't have to do this deal now, maybe it is more prudent to wait," Bank of America chairman of global M&A Steven Baronoff told the panel.
There are green shoots. Last month, oil major Chevron Corp said it would acquire Hess Corp in a $53 billion deal, less than two weeks after rival Exxon Mobil Corp said it would buy Pioneer Natural Resources for $59.5 billion -- the two biggest transactions so far this year.
JPMorgan Chase & Co global M&A head Anu Aiyengar pointed out these two deals were all-stock and said more companies are using their shares as currency to overcome acquisition targets' concerns about locking in a cheap valuation, which they would risk if they sold for cash.
"Our (deal pipelines) are at one of the largest levels that you've seen in five-six years. Some (companies) will come out and take the lead," Aiyengar said.
She added that companies were more willing to battle regulators in court over their deals in light of high-profile legal victories some, such as Microsoft Corp and Illumina Inc, have scored. "Litigation has moved from being an insurance policy to being a strategy," Aiyengar said.
Centerview Partners investment banking co-president Anthony Kim said that his firm continued to invest in its talent even though it was a tough year for the sector, as it need to make sure it will capitalize when conditions improve.
"Things are improving and we need to plan for the future," Kim said.
Mizuho's Americas head of investment and corporate banking Michal Katz, whose bank inked a deal in June to expand in the United States with the $550 million acquisition of M&A advisory firm Greenhill & Co Inc, said there the challenges in the dealmaking environment offered opportunities to acquirers who can structure deals creatively.
"Complexity creates opportunity. If you are a corporation or a private equity firm that can put together a structure that bridges the gap on valuation, you will be able to get support from your financing partners," Katz said.
