by Anirban Sen and Pamela Barbaglia
March 31 (Reuters) – Global merger and acquisition (M&A) deals fell 29% in the first quarter as market volatility linked to Russia’s invasion of Ukraine weighed on the market after a year 2021 particularly dynamic.
Transactions concluded since the beginning of the year represented a volume of 1,010 billion dollars (907 billion euros) according to Dealogic data, against 1,430 billion in the first quarter of last year.
The fall also stands at 29% for cross-border operations, geopolitical tensions having prompted multinationals to suspend their external growth projects.
“Rising energy costs, dislocating supply chains and rising inflation are key factors influencing both corporate and private equity clients at the moment,” said Dwayne Lysaght, co-head of M&A for the Europe-Middle East-Africa region at JPMorgan Chase & Co.
North America accounted for more than half of market activity in the first quarter despite a 28% drop in volumes, compared to -33% for Asia-Pacific and -25% for Europe.
M&A specialists also note that the comparison with the start of 2021 is suffering from the record volumes recorded last year.
“While implementation has become a bit more difficult due to increased volatility and macroeconomic concerns, that hasn’t prevented new business,” said Stephan Feldgoise, co-head of M&A at Goldman Sachs.
THE GLASS HALF FULL
Among the highlights of the past quarter are the takeover of Activision Blizzard by Microsoft for 75 billion dollars and the merger of the Spanish activities of Orange and MasMovil for 19.6 billion euros.
But some specialists note that market volatility prevents some large groups from taking advantage of the power offered by their market capitalization to buy out smaller competitors.
“In this period of dislocation, volatility has strongly affected the use of payment in securities,” notes Cary Kochman, co-head of M&A at Citigroup. “The market is no longer frenetic.”
Despite these pitfalls, the context remains generally favorable to mergers and acquisitions.
“We are choosing to see the glass half full: if volumes fall, we remain on a trend that seems very close to that of 2016-2019,” said Kevin Brunner, co-head of M&A at Bank of America.
The number of deals over ten billion dollars has risen from 12 to 13 in one year, a sign that companies and private equity firms are not giving up on big deals despite the market context.
Financing costs remaining relatively low compared to historical levels, transactions initiated by private equity funds remain at high levels, with a total amount of 204.47 billion dollars.
“Private equity M&As will continue to represent a larger share of overall M&A activity as available ammunition remains at high levels,” said Jim Langston, co-head of M&A at Cleary Gottlieb Steen & Hamilton.
JUMP IN VOLUMES IN REAL ESTATE, DROP IN HEALTHCARE
In detail, the high-tech sector remains the most active in terms of mergers and acquisitions despite a drop in volumes compared to the first months of 2021.
Real estate is one of the few sectors in which mergers and acquisitions activity has increased significantly (+47%), with office real estate regaining interest in the eyes of investors with the reduction in health restrictions.
On the other hand, health care, which often represents a significant share of the M&A market, shows a fall of more than half of the volumes of transactions, the large pharmaceutical groups having adopted a more cautious approach due to the volatility of the markets.
This volatility has not, on the contrary, prevented activist investors from maintaining pressure on boards of directors with a view to obtaining disposals or spin-offs in order to increase the valuation of listed companies.
“Companies in many sectors believe that their business model will need a profound change in the near future, mainly because of the impact of new technologies but also for other reasons specific to their field of activity”, said Pier Luigi Colizzi, head of investment banking at Barclays in continental Europe and co-head of M&A EMEA.
Mergers and acquisitions specialists believe that activity volumes should rebound once geopolitical tensions have subsided, but they add that the amount of individual transactions could be reduced.
“This is the kind of time when I predict we’re not going to see a $75 billion+ deal surge,” Kochman said. (Report Anirban Sen and Pamela Barbaglia, French version Marc Angrand)
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