Predicting a strong return to deal-making would be foolish, given the unprecedented geopolitical uncertainty we are experiencing and will continue to experience for the foreseeable future.
However, after a year in which M&A activity fell below $3 trillion for the first time in a decade, there are some encouraging signs that 2024 will see active deal movement. According to data from the London Stock Exchange Group, the value of transactions concluded globally during the past year declined by 17%, to about $2.9 trillion.
Frank Aquila, a corporate affairs lawyer at Sullivan & Cromwell, said that conditions in 2024 are likely to be better, after a year characterized by two major military conflicts, and intense efforts by central banks to combat inflation with rapid increases in interest rates, in addition to uncertainty about what… If the United States were to default on its debt.
Aquila added: “Now, as we look to 2024, there is justified optimism that central banks will actually be able to achieve the smooth landing they were seeking, with inflation under control and growth continuing, albeit low.
Therefore, we can expect M&A activity to pick up across most sectors and geographies.” It will be easier for CEOs of listed public companies to justify deal costs to shareholders, given lower borrowing costs. Lower interest will make it easier for leveraged buyouts to go smoothly.
Global stocks rose during the latter part of last year, with investors anticipating lower interest rates. The stock market recovery tends to go hand in hand with activity in the deal-making market, with potential buyers wanting to snap up assets before they become too expensive, and sellers wanting to take advantage of their inflating valuations. Some sectors are already showing signs of recovery, with a number of major deals being concluded in the energy and healthcare sectors.
In the oil and gas sector, ExxonMobil and Chevron concluded huge deals, acquiring smaller competitors, Pioneer for $60 billion, and Hess for $53 billion, respectively.
These deals opened the way for more in the sector, including Occidental Petroleum’s acquisition of Crown Rock for $12 billion, and Chesapeake Energy’s agreement to buy Southwestern Energy for $7.4 billion, through stock purchases.
In the pharmaceutical industry, major companies, such as AstraZeneca, ABV, and Bristol-Myers Squibb, announced deals related to biotechnology, worth approximately $25 billion. BlackRock concluded a deal to buy Global Infrastructure Partners for $12.5 billion, in shares and cash.
But the news is not all good for dealmakers, as the harsh antitrust environment, as well as geopolitical instability around the world, are two of the main deterrents to deal making during 2023.
Regulatory bodies in the United States and Europe, as well as in the United Kingdom, have hardened their positions in recent years when dealing with mergers that they consider harmful to consumers and society on a large scale.
This situation is unlikely to change, but a series of failures by US regulators in the courts as they try to stop large deals has led many CEOs to press ahead with deals, despite the risk of being challenged by enforcement agencies.
“From a U.S. perspective, the tough enforcement stance of U.S. agencies and the difficulty of predicting outcomes or the length of proceedings continue to hamper deal organizers,” said Tom McGrath, a senior antitrust lawyer at Linklaters.
He added: “At the same time, many of our clients intend to move forward with strategically important deals, which agencies are likely to carefully consider. Some are prepared for lengthy review processes, as well as the possibility of engaging in litigation with the government, in order to achieve their strategic goals.”
Democracy can thus stand in the way of deal-making as a potentially negative factor. Data from the London Stock Exchange Group indicated that deal activity, over the past decade, was slowing down before the elections, especially in the United States.
Elections tend to be disincentive to mergers and acquisitions, with executives preferring to wait to get a clearer view of who will be in government before deciding whether to do a deal.
About half the world’s population is voting in elections this year, which means we should expect some confusion, but in the US a new Trump administration is very likely to be seen as more pro-deal, mainly due to the expected relaxation of antitrust enforcement.
While the overall M&A landscape appears to have improved compared to last year, especially in light of the recession that many feared, the outlook remains mixed. However, deal organizers remain confident that the worst is over.
“CEOs and boards don’t need to have a clear picture of what the future will look like, but they do need a degree of stability,” says Stefan Feldjuis, global co-head of mergers and acquisitions at Goldman Sachs. “In general, I am reasonably optimistic that this will return, but it will obviously be intermittent and for periods of time.”
2024-01-14 22:03:17
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