Pandemic recovery fuels deal craze as third-quarter M&A breaks all records

• Global M&A hits all-time high of $ 1.52 trillion in third quarter
• Cheap financing stimulates the desire for transformative deals
• Volume doubles in Europe through private equity buyouts
• U.S. Activity Up 32% To $ 581 Billion, Asia Pacific Up 21%
• Hectic dealmaking breaks all annual records

LONDON, September 30 (Reuters) – Global mergers and acquisitions hit record highs in the third quarter as companies and investors shaped their post-COVID future through transformative deals while their advisors struggled to handle unprecedented transaction volumes.

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

Third-quarter volume drove global M&A activity to an unprecedented record of $ 4.33 trillion in the first nine months of 2021, surpassing the previous year’s high of $ 4.1 trillion before the financial crisis last year 2007, forcing the investment banks to pay for overworked and dissatisfied junior staff.

“The path to recovery is becoming clearer and people are looking beyond COVID,” said Birger Berendes, co-head of M&A in EMEA at Bank of America (BAC.N).

“Investors are full of cash and want companies to look for acquisitions in areas where they need to grow or add skills and services rather than just paying dividends or buying back shares.”

In the third quarter, the volume in Europe doubled with M&A transactions valued at € 473 billion.

“M&A is a game of trust. Both companies and sponsors feel very comfortable in the current environment and are therefore aggressively pursuing opportunities before a market correction occurs,” said Dirk Albersmeier, Global Co-Head of M&A at JPMorgan (JPM.N).

“Investors are sensitive to factors such as inflation, interest rate developments and increased regulatory scrutiny,” he added.

While U.S. President Joe Biden’s upcoming tax reforms are likely to increase the cost of executing deals, leading M&A bankers said they don’t expect any slowdown in transaction closings in the near future.

“The new tax policy is not even an issue for discussion. It has no impact on deals – probably a reflection of how people feel about the likelihood of it going into effect next year,” said Mark Bekheit, M&A partner at Latham law firm & Watkins LLP.

While the market for blank check companies was facing headwinds, a SPAC deal sold for 32.6 billion

Other significant deals include the $ 29 billion acquisition of Afterpay (APT.AX) by Square (SQ.N), the spin-off of Universal Music Group (UMG.AS) by Vivendi (VIV.PA), and an 18.4 Billion pound fall of the US sports betting company DraftKings (DKNG.O) on Ladbrokes owner Enttain (ENT.L). Continue reading

ANIMAL SPIRITS

Advances by Western economies in vaccinating their adult populations and easing COVID restrictions in the summer fueled animal spirits as bidding wars broke out between private equity firms for control of publicly traded companies such as UK supermarket group Morrisons (MRW.L).

Private equity buyouts rose 133% to $ 818 billion in the first nine months of the year as investment firms rushed to deploy cash and often paid high prices to remove assets from public markets.

Bankers say private equity firms learned to calculate risk after the financial crisis.

“Valuations are very high right now. Funds are pursuing opportunities that they believe can add value,” said Anna Skoglund, head of Goldman Sachs (GS.N) EMEA finance and strategic investor group.

“We have moved from opportunistic, more finance-driven transactions to thematic investments and platform building.”

The shopping spree is expected to continue as the Federal Reserve’s bond purchase program helped drive interest rates to all-time lows and offer cheap leverage to potential buyers.

“The rationale is pretty straightforward – we are really inundated with liquidity,” said Mark Shafir, global co-head of M&A at Citigroup (CN).

“They have an incredibly hospitable fixed rate market in terms of prices and availability. So there are plenty of opportunities to do business.”

CARPE DIEM

Deals increased in most sectors of the economy, especially in technology – where software deals more than tripled in the first nine months of the year – and in the energy and power sectors, with companies accelerating their move into renewable energy projects into a net zero future.

Dealmakers say that while corporate buyers thought carefully about risk, they have become more agile to seize opportunities and better compete with private equity in fast-paced auctions.

“The board members are still examining several options for implementing their strategic goals. Customers are considering using M&A to accelerate their strategy when they see the opportunity, ”said Omar Faruqui, Co-Head of EMEA M&A at Barclays (BARC. L).

As the threat from activist shareholders re-emerges, bankers say the upcoming pipeline will also include spin-offs to unleash the value trapped in profitable units and capitalize on buoyant stock markets.

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

“Market distortions lead to a decline in activism. Unsurprisingly, when the pandemic struck, you saw a real withdrawal, ”said David Rosewater of Morgan Stanley (MS.N), an executive director of the Activist Defense Group.

“When the market returned, activism was seen to return, rewarding additional opportunities.”

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

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