Big company predators bolster international M&A market | USAEMALL.com

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Global companies have stepped off the sidelines in recent months to pursue blockbuster takeovers of rivals, emboldening hopes of a comeback in mergers and acquisitions even as the overall number of deals sank to a nine-year low.

Some $2.3tn-worth of deals were announced in the first nine months of the year, according to data compiled by LSEG, up 17 per cent from the same period last year.

A sharp rise in megadeals drove the uptick, with high-profile transactions including Mars’s $36bn purchase of Pringles maker Kellanova, Verizon’s $20bn acquisition of Frontier Communications and the €14.3bn sale of Deutsche Bahn’s logistics unit struck in recent weeks.

“Big deals are back. Corporates are very confident,” said Carsten Woehrn, Goldman Sachs’ co-head of Europe, Middle East and Africa mergers and acquisitions.

It is unclear whether some of the bolder takeover approaches — such as chipmaker Qualcomm’s overture to struggling rival Intel, or UniCredit’s audacious stakebuilding at Commerzbank — will lead to transactions. In Japan, 7-Eleven owner, Seven & i Holdings, rebuffed a $39bn cash takeover offer from Canada’s Alimentation Couche-Tard.

Bankers and lawyers nonetheless are optimistic that blockbuster deals showed that big companies were stepping off the sidelines to pursue acquisitions. “High CEO confidence and slowing growth” were driving the pick-up, said Jens Welter, head of Emea and UK investment banking for Citi. 

Geopolitical uncertainty and heightened interest rates left deal volume in dollar terms below the average of the last decade, a far cry from the 2021 record year when deal value hit $4.1tn in the first nine months.

But the mood music in corporate boardrooms was changing, bankers said, as central banks in the US, eurozone and UK had all moved to cut interest rates in recent months.

“We’re seeing boardroom sentiment become quite positive, and that’s really built around the optimism that there will be a soft landing, and that we’re on a path to continued rate cuts,” said Kevin Brunner, chair of global mergers and acquisitions at Bank of America.

The recent cuts to interest rates could benefit the private equity industry in particular, because of its reliance on debt to fund the acquisition of companies.

While the value of private equity backed deals increased 38 per cent on a year ago to $531bn, the number of transactions fell, with dealmaking in the sector dominated by the large, diversified investment groups that have sucked up capital.

High profile transactions by private equity groups have included private capital giant Blackstone’s A$24bn purchase of Australian data centre platform AirTrunk and Silver Lake’s $13bn purchase of sports and entertainment company Endeavor.

Falling interest rates could see the dealmaking revival filter down to smaller and mid-sized private equity firms.

The latest interest rate cut from the US Federal Reserve meant that “you’re hopefully going to see a return of deal volume particularly among middle market and bigger market sponsors, which hopefully drives up deal volume and deal value in the fourth quarter and early part of next year”, said Krishna Veeraraghavan, global co-head of law firm Paul Weiss’s mergers and acquisitions practice. 

After ExxonMobil’s $60bn acquisition of Pioneer Natural triggered a wave of consolidation in the oil and gas sector this year — with deals including $37bn spin-off of GE Vernova, and Diamondback Energy’s $26bn acquisition of Endeavor Energy Resources — dealmakers forecast similar activity in the technology industry.

While private equity deals made up many of the sector’s $370bn worth of acquisitions, chip design software maker Synopsys’s $35bn purchase of graphics software maker Ansys had bolstered hopes of more mergers of equals, advisers said.

When big companies started to do deals, their competitors took notice, BofA’s Brunner said. “Strategic moves on the chessboard cause others to take a step back and re-examine where they are, and where they’re headed.”

This article has been amended to correct the spelling of the name of Krishna Veeraraghavan