Pandemic recovery fuels deal craze as third quarter mergers and acquisitions break all records

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  • Global mergers and acquisitions hit all-time high of $ 1.52 trillion in third quarter
  • Inexpensive Financing Stimulates Desire For Transformative Transactions
  • Volumes double in Europe thanks to private equity buyouts
  • US activity up 32% to $ 581 billion, Asia-Pacific up 21%
  • Frenzied transactions surpass all full-year records

LONDON, Sept. 30 (Reuters) – Global mergers and acquisitions hit new highs in the third quarter as businesses and investors shape their post-COVID futures with transformative deals as their advisers struggle to keep up with volumes of transactions never seen before.

A frenetic summer of merger activity produced deals worth $ 1.52 trillion in the three months to September 27, up 38% from same quarter last year and more than any other quarter on record, according to data from Refinitiv.

Third-quarter volumes drove global M&A activity in the first nine months of 2021 to an all-time high of $ 4.33 trillion, surpassing a historic annual high of $ 4.1 trillion reached before the 2007 financial crisis and forcing investment banks to raise the wages of overworked and overworked people. disgruntled junior staff.

“The road to recovery is becoming clearer and people are looking beyond COVID,” said Birger Berendes, who co-leads EMEA mergers and acquisitions at Bank of America (BAC.N).

“Investors are brimming with cash and want companies to look for acquisitions in areas where they need to grow or add capacity and services rather than just paying dividends or buying back stocks.”

Third-quarter volumes doubled in Europe to $ 473 billion in M&A deals compared to the same quarter last year, while the United States rose 32% to $ 581 billion and l Asia-Pacific by 21% to 365 billion dollars.

“Mergers and acquisitions are a game of trust. Companies and sponsors feel very good in the current environment and that is why they aggressively seek opportunities before there is a market correction,” said said Dirk Albersmeier, Global Co-Head of Mergers and Acquisitions at JPMorgan (JPM.N).

“Investors are sensitive to factors such as inflation, changes in interest rates and increased regulatory control,” he added.

While US President Joe Biden’s upcoming tax reforms are likely to increase the cost of transactions, major M&A bankers have said they don’t expect transactions to slow down in the near term.

“The new tax policy is not even a topic of discussion. It has no impact on the agreements – probably a reflection of what people think about the likelihood of it coming to fruition next year,” said Mark Bekheit, mergers and acquisitions partner at Latham law firm. & Watkins LLP.

As the blank check company market faced headwinds, a $ 32.6 billion PSPC deal led by Lionheart Acquisition Corp II (LCAP.O) for US firm MSP Recovery topped the quarterly rankings. . Read more

Other important deals include the buyout of Afterpay (APT.AX) by Square (SQ.N) for $ 29 billion, the Vivendi (VIV.PA) spin-off of Universal Music Group (UMG.AS ) and an £ 18.4 billion swoop by US sports betting firm DraftKings. (DKNG.O) on the owner of Ladbrokes Entain (ENT.L). Read more

ANIMAL SPIRITS

Progress by Western economies to vaccinate their adult populations and the easing of COVID restrictions over the summer has fueled the minds of animals with bidding wars erupting between private equity firms for control of listed companies, including the UK supermarket group Morrisons (MRW.L).

Private equity buyouts jumped 133% to $ 818 billion in the first nine months of the year, as investment firms rushed to deploy liquidity, often paying high prices to withdraw funds. public procurement assets.

Bankers say private equity firms have learned to calculate risk after financial crises.

“It is clearly recognized that valuations are currently very high. Funds look for opportunities when they are convinced they can add value, ”said Anna Skoglund, head of the financial and strategic investor group of Goldman Sachs (GS.N) in the EMEA region. .

“We have moved from opportunistic and more finance-oriented transactions to thematic investments and the creation of platforms. “

The buying frenzy is likely to continue as the Federal Reserve’s bond buying program has helped push interest rates to all-time lows, providing cheap debt financing to potential buyers.

“The rationale is pretty straightforward – we’re really inundated with cash,” said Mark Shafir, global co-head of mergers and acquisitions at Citigroup (CN).

“You have an incredibly welcoming fixed income market in terms of rates and availability. There are therefore many opportunities to conclude transactions. “

CARPE DIEM

Transactions increased in most sectors of the economy, particularly the tech industry – where software transactions more than tripled in the first nine months of the year – as well as energy and electricity. with companies accelerating their transition to renewable energy projects as part of their transition to a net zero future.

Negotiators say that while thinking carefully about risks, business buyers have become more nimble to take advantage of opportunities and better compete with private equity in quick auctions.

“Boards of directors continue to assess several options for implementing their strategic objectives. Clients think a lot about using M&A to accelerate their strategy when they see the opportunity to do so, ”said Omar Faruqui, co-head of M&A EMEA at Barclays (BARC. L).

As the threat of activist shareholders resurfaces, bankers say the upcoming pipeline will also include fallout to unleash value trapped in profitable units and profit from vibrant stock markets.

Activist funds are carefully monitoring how companies meet the challenges of adjusting their business models to the post-COVID world and will be a key driver of change.

“Market dislocations cause activism to drop. Unsurprisingly, when the pandemic hit you saw a real setback,” said David Rosewater of Morgan Stanley (MS.N), chief executive of the advocacy group. activist.

“As the market has come back, you’ve seen activism come back and reward additional opportunities.”

Reporting by Pamela Barbaglia in London and Anirban Sen in Bengaluru Editing by Matthew Lewis

Our standards: Thomson Reuters Trust Principles.


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