Dealmakers adrift as $1.35 trillion vanishes in first-half slump

ABU DHABI – The world’s dealmakers are roughly US$1 trillion ($1.35 trillion) down in one of the worst years for takeovers and stock market listings in a decade.

That sum is the year-on-year drop in the value of mergers and acquisitions (M&A) and initial public offerings (IPOs) in the first half, a period in which inflationary pressures, financing constraints and geopolitical tensions nixed activity across regions and sectors.

And with the traditional summer lull on the doorstep, and fears of a recession lingering, the next six months could bring more pain on Wall Street, where banks have already been slashing bonuses and jobs in response to the slump.

“Deals are being delayed,” said Mr Dominic Lester, head of investment banking for Europe, the Middle East and Africa at Jefferies Financial Group. “Boards are having difficulty valuing assets, and are therefore taking longer to commit to transactions.”

Deal volumes are down 42 per cent year on year at US$1.3 trillion, according to data compiled by Bloomberg. Excluding 2020, which was affected by Covid-19, that is the smallest first-half total in a decade and below the average for the period.

Private equity buyouts are flagging because of the lack of cheap debt and disagreements with sellers over price. Strategic buyers have yet to pick up the slack, having found the path to takeovers complicated by increasing government intervention. 

In the last six weeks, tens of billions of dollars worth of M&A have either stalled or collapsed – ranging from the US$10 billion tie-up of satellite operators SES and Intelsat, to Citigroup’s US$7 billion sale of its Mexican unit. Other pending deals, including Microsoft’s US$69 billion takeover of games maker Activision Blizzard, face being scotched by the antitrust authorities.

Things are little improved in the market for new listings, with companies having raised just US$68 billion via IPOs in the opening six months of 2023, Bloomberg-compiled data shows. That is down more than a third year on year, with only 2016 having seen a lower first-half total since the global financial crisis. 

The forces dragging down listings are much the same as those for M&A: Concerns about a global economic slowdown and a mismatch in pricing expectations between companies and investors. 

“The elephant in the room really is that we are expecting a recession. The timing of that recession is challenging and it will be largely consumer-led,” said Ms Stephanie Niven, a London-based portfolio manager at investment firm Ninety One. “That’s why investors are cautious. The market itself hasn’t exactly priced a recession.”

Poor performance from some of the year’s high-profile IPOs, including German Web hosting group Ionos and Italian gambling firm Lottomatica Group, has not helped things. Earlier in June, WE Soda, the world’s largest producer of natural soda ash, blamed “extreme investor caution” for a decision to cancel its London IPO.

“What we need for the IPO market to reopen is for 10-15 deals to trade well,” said Mr Thorsten Pauli, head of equity capital markets for Germany, Austria and Switzerland at Bank of America. “We are seeing a resurgence of preparation for 2024 deals but issuers have to be reasonable on valuation.”

The gloom is a far cry from the record breaking US$5 trillion-plus year of 2021 and the decade that preceded it – a period in which low interest rates powered private equity buyouts and soaring stock prices encouraged companies to list new shares. 

For equity capital markets bankers, bright spots have been found in the East, with China accounting for roughly half the money raised via IPOs this year. The country has cut curbs on local companies seeking listings overseas and made rule changes to encourage more listings at home. Seed giant Syngenta Group this month won exchange approval for its 65 billion yuan (S$12 billion) IPO, moving the world’s biggest potential listing this year a step closer to completion.

State-backed listings in the Middle East continue to be a draw. Abu Dhabi has dominated listing activity in the Persian Gulf, mainly thanks to the oversubscribed IPOs of Abu Dhabi National Oil’s gas and maritime logistics businesses.

In Europe, companies focused on energy transition, such as Thyssenkrupp’s Nucera hydrogen unit, are finding enough favour among investors to proceed to market with confidence, while carve-outs and spin-offs are helping to fill the void in the United States. In May, Johnson & Johnson’s consumer health business Kenvue sealed the biggest US listing since 2021.

“The next six months of 2023 will definitely have some IPOs, the market is not closed and good companies can always get out,” said Mr Mike Bellin, partner and IPO services leader at PricewaterhouseCoopers. “A lot of the companies we’re talking to are thinking it’s more of a 2024 timeframe.” Bloomberg