Over $209 billion of M&A deals shelved since June as credit woes bite

Dislocated financing markets and higher interest rates are making acquisition financing more expensive and harder to raise. PHOTO ILLUSTRATION: PEXELS

HONG KONG (BLOOMBERG) - Takeovers are falling apart in places from Sydney to Switzerland, leading to a gloomy late summer for Wall Street bankers as cheap financing dries up.

More than US$150 billion (S$209.6 billion) of mergers and acquisitions (M&A) have been scrapped or stalled since the beginning of June, according to data compiled by Bloomberg. KKR & Co on Friday (Aug 26) confirmed a Bloomberg News scoop that it is abandoning a US$14 billion bid for Australian hospital chain Ramsay Health Care.

Swiss drugmaker Novartis announced a day earlier that it would spin off its US$25 billion generics unit after failing to draw attractive private equity bids. Merck & Co's talks for US$30 billion cancer drugmaker Seagen have hit a snag over price, while Ardian is shelving a US$3 billion sale of Italian healthcare software provider Dedalus.

Inflation fears

Dislocated financing markets and higher interest rates are making acquisition financing more expensive and harder to raise, said Mr Lars Aagaard, head of Asia-Pacific M&A at Barclays.

"More deals are being pulled and auction processes put on hold," he said. "Vendors' price expectations take some time to adjust to the new normal."

Private equity dealmakers are struggling to get cheap credit for buyouts as inflation and fears of an economic slowdown rock the debt markets.

Investment banks are nervous about adding more debt to the US$80 billion they already hold, while private lenders are pulling back on risk by cutting how much debt they are offering in a single deal.

Crypto bubble

Several transactions have been cancelled due to once-hot parts of the market falling out of favour. In the cyptocurrency industry, Mr Mike Novogratz's Galaxy Digital Holdings and a lender backed by the Thai royal family both scrapped acquisitions this month.

The air has also been coming out of the market for special purpose acquisition companies (Spacs). Grooming start-up Manscaped this month terminated a US$1 billion deal with a blank-cheque company that was set to be backed by American actor Channing Tatum. Ticketing engine SeatGeek abandoned a US$1.4 billion merger with a Spac backed by basketball star Kevin Durant.

Then there is the biggest deal of them all to hit the rocks: Mr Elon Musk's US$44 billion takeover of Twitter, which is subject to a court battle after the billionaire tried to back out.

To be sure, some negotiations could be revived, particularly if market sentiment improves. Ramsay Health Care said on Friday that it is prepared to engage with KKR to see if it can come up with another offer.

Dealmaking may pick up in the fourth quarter and early next year, according to Barclays' Mr Aagaard, who is also head of financial sponsors for the Asia-Pacific. Banks' appetite to finance new deals may increase as they start offloading some of the risk they hold, he said.

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