© Reuters. FILE PHOTO: Traders work on the buying and selling flooring of Barclays Bank at Canary Wharf in London, Britain December 7, 2018. REUTERS/Simon Dawson/File Photo
By Pamela Barbaglia and Anirban Sen
LONDON (Reuters) – Global mergers and acquisitions hit new report highs within the third quarter as firms and traders formed their post-COVID future by means of transformative offers whereas their advisers struggled to deal with transaction volumes by no means seen earlier than.
A frantic summer time of merger exercise produced offers value $1.52 trillion within the three months to Sept. 27, up 38% from the identical quarter final yr and greater than some other quarter on report, based on Refinitiv information.
Third-quarter volumes drove international M&A exercise within the first 9 months of 2021 to an unprecedented report of $4.33 trillion, overtaking an all-time annual peak of $4.1 trillion hit earlier than the monetary disaster in 2007 and forcing funding banks to hike pay for overworked and disgruntled junior workers.
“The path to recovery is increasingly clear and people are looking beyond COVID,” mentioned Birger Berendes who co-heads M&A in EMEA at Bank of America (NYSE:).
“Investors are flush with cash and want companies to look for acquisitions in areas where they need to grow or add capabilities and services rather than just paying dividends or buying back shares.”
Third-quarter volumes doubled in Europe with $473 billion value of M&A offers in contrast with the identical quarter final yr whereas the United States was up 32% to $581 billion and Asia Pacific rose 21% to $365 billion.
“M&A is a confidence game. Both corporates and sponsors feel very good about the current environment and that’s why they are aggressively pursuing opportunities before there is a market correction,” mentioned Dirk Albersmeier, international co-head of M&A at JPMorgan (NYSE:).
“Investors are sensitive about factors like inflation, interest rate developments and increased regulatory scrutiny,” he added.
While U.S. President Joe Biden’s upcoming tax reforms are prone to enhance the price of doing offers, high M&A bankers mentioned they don’t anticipate a slowdown in deal-making within the close to time period.
“The new tax policy is not even a discussion point. Not impacting deals, whatsoever – probably a reflection on how people feel about the likelihood that it’s going to come into fruition next year,” mentioned Mark Bekheit, an M&A associate at regulation agency Latham & Watkins LLP.
While the marketplace for blank-cheque firms has confronted headwinds, a $32.6 billion SPAC deal led by Lionheart Acquisition Corp II for U.S. agency MSP Recovery topped up the quarterly charts.
Other sizable offers embody Square’s $29 billion takeover of Afterpay, Vivendi (OTC:)’s spinoff of Universal Music Group (AS:) and an 18.4 billion-pound swoop by U.S. sports activities betting agency DraftKings (NASDAQ:) on Ladbrokes (LON:) proprietor Entain.
Progress made by Western economies to vaccinate their grownup inhabitants and the easing of COVID restrictions through the summer time fuelled animal spirits with bidding wars erupting amongst non-public fairness companies for management of listed firms together with British grocery store group Morrisons.
Private fairness buyouts surged 133% to $818 billion within the first 9 months of the yr as funding companies rushed to deploy money, usually paying wealthy costs to take property off the general public markets.
Bankers say non-public fairness companies have learnt how one can calculate threat after the monetary crises.
“There is a clear recognition that valuations are very high at the moment. Funds are pursuing opportunities where they have conviction they can add value,” mentioned Anna Skoglund, head of Goldman Sachs (NYSE:)’ monetary and strategic investor group in EMEA.
“We have moved away from opportunistic, more financially driven transactions to thematic investing and platform building.”
The buying spree is predicted to proceed as the Federal Reserve’s bond-buying programme has helped push rates of interest to all-time lows, providing low cost debt-financing to would-be acquirers.
“The rationale is pretty straightforward – we’re really awash in liquidity,” mentioned Mark Shafir, international co-head of M&A at Citigroup (NYSE:).
“You’ve got an incredibly hospitable fixed-income market in terms of rates and availability. So there’s plenty of opportunity to do deals.”
Deal-making surged in most sectors of the financial system, particularly the expertise trade – the place software program offers greater than tripled within the first 9 months of the yr – as properly as vitality and energy with firms accelerating their transfer into renewables initiatives as a part of their transition to a net-zero future.
Dealmakers say that whereas fastidiously pondering threat, company consumers have develop into extra nimble to benefit from alternatives and higher compete with non-public fairness in fast-paced auctions.
“Boards continue to assess multiple options to implement their strategic objectives. Clients are being very thoughtful about using M&A to accelerate their strategy where they see the opportunity to do so,” mentioned Omar Faruqui, co-head of EMEA M&A at Barclays (LON:).
As the specter of activist shareholders resurfaces, bankers say the pipeline forward will even embody spinoffs to unlock worth trapped in worthwhile items and benefit from buoyant inventory markets.
Activist funds are fastidiously watching how firms are navigating the challenges of adjusting their enterprise fashions to the post-COVID world and can be a key think about driving change.
“Market dislocations cause a decline in activism. Not surprisingly, when the pandemic hit you saw a real pullback,” mentioned Morgan Stanley (NYSE:)’s David Rosewater, a managing director of the activist protection group.
“As the market came back, you saw activism come back and reward additional opportunities.”