Global transactions entered a dry season as sharp inflation and stock market defeats curbed the thirst of many corporate boards to grow through acquisitions.
Russia’s invasion of Ukraine in February and concerns that the recession was getting close to a blow to mergers and acquisitions (M&A) activity in the second quarter.
The value of the announced offer dropped 25.5 percent year -over -year to $ 1 trillion, according to Dealogic data.
“Companies are withdrawing from M&A in the short term because they are more focused on the impact of the recession on their business. The time to make a deal will come but I don’t think it’s there yet,” said Alison Harding -Jones, head of M&A EMEA Citigroup Inc.
M&A activity in the United States plunged 40 percent to $ 456 billion in the second quarter, while Asia Pacific was down 10 percent, Dealogic data showed.
Europe is the only region that made the deal not fail. Activity rose 6.5 percent during the quarter, largely driven by a frenzy of private equity transactions, including a 58 billion euro acquisition bid for Italian infrastructure group Atlantia.
“We were nervous about the last half year but the transaction is still going on,” said Mark Shafir, global co -head of M&A at Citigroup.
With the stock market facing constant turmoil, board rooms are wary of making expensive bets.
“We’re unlikely to see a large number of mega deals and purchases made in the next few quarters. M&A is hard to do when a company is trading at a 52 -week low,” said Marc Cooper, chief executive of U.S. advisory firm Solomon partners.
The volume of cross -border transactions fell 25.5 percent in the first six months of the year. The traditional bustle of US investment in Europe did not occur in the wake of the Russian-Ukrainian conflict.
“When you think about the psychology of executives and their level of confidence to make the leap across borders, you have to take into account the level of uncertainty in the world and how it affects time,” said Andre Kelleners, head of EMEA M&A at Goldman Sachs Inc. Group.
Acquisition financing has become more expensive for companies as central banks have raised interest rates to fight inflation.
Even those who have the cash to execute a deal or use their shares as currency find it difficult to agree on prices in an unstable market.
“Stock market volatility is a big obstacle to strategic M&A. When you’re experiencing stock market volatility, it’s hard to have value conversations and makes it hard to use stocks as currency,” said Damien Zoubek, co -head of U.S. corporate practices and M&A at Freshfields Bruckhaus Deringer.
In Europe, a sharp fall in the value of the euro and the pound left companies vulnerable to opportunistic offers by private equity investors.
“Market dislocations offer a window of opportunity to private equity funds as valuations are declining,” said Umberto Giacometti, co -head of financial sponsor group EMEA Nomura.
“There is a lot of screening work underway on listed companies for both private takeover transactions and the acquisition of stakes in public companies. But without price adjustments, activity cannot resume properly,” Mr Giacometti said.
He predicts the average size of private equity transactions will shrink as banks close funding pipes and private credit funds become wary of signing large checks.
Going forward, deal makers expect cross -border transactions between the United States and Europe to increase eventually, on the back of a strong dollar and a widening gap between US and European company valuations.
“With a slightly increased level of visibility from what we had earlier this year, you can expect capital flows to resume and transaction activity to increase, including in terms of funding,” said Mr. Kelleners of Goldman.
But caution is in place as companies are still trying to sever their ties with Russia or limit their exposure to the region.
“Customers are increasingly looking inward rather than outward,” said Mr. Harding-Jones of Citigroup.