Is M&A back in the US?
We’ve all been consumed by Elon Musk buying Twitter, but zoom out and it’s obvious that dealmaking is down globally this year — by about a third compared to 2021, according to Refinitiv data.
The end of cheap cash to finance takeovers, Russia’s invasion of Ukraine, and a steep drop in equity valuations are all contributing factors.
Now there are signs that dealmakers are finding ways to get transactions through again. Just this week, we’ve seen three deals announced that are each worth more than $10bn.
Here’s a quick list of recent mega-transactions either in the works or agreed:
Johnson & Johnson agreed to buy cardiovascular technology group Abiomed for $16.6bn including debt.
Blackstone has agreed to acquire a majority stake in Emerson Electric’s climate technologies business in a deal that values the unit at $14bn.
Marine and energy asset owner Atlas Corp has accepted an $11bn take-private offer from Poseidon Acquisition Corp, the investment vehicle backed by Atlas’s chair David Sokol.
US grocer Kroger has agreed to acquire rival Albertsons for $24.6bn.
Rupert Murdoch’s proposal to merge Fox and News Corp after nearly a decade apart would result in the combination of the groups’ $17bn and $9bn market capitalisations, respectively.
And then there’s Musk’s $44bn Twitter takeover (DD broke down the latest in the saga yesterday.)
The common denominator of these megadeals? They’re all made in the USA.
Bankers told DD’s Ortenca Aliaj and James Fontanella-Khan that the US economy and consumer have remained robust. “There is a bifurcation between those companies that raised capital and those that didn’t,” said Stephan Feldgoise, co-head of M&A at Goldman Sachs. “Companies with cash can more easily make moves that will enhance their portfolio.”
At our DD Live conference in London last month, Centerview’s Blair Effron said he didn’t see M&A activity falling in the long term and emphasised the growing importance of private equity takeover activity.
An executive at a large buyout firm recently told DD they were growing increasingly aggressive, fearing that a market ripe with attractive valuations won’t persist for long. The bullishness was echoed by KKR on Tuesday.
“[The] overall mood and sentiment across KKR is quite positive,” said chief financial officer Robert Lewin on an earnings call. “In private equity, oftentimes, our best vintages result from investments made during periods of market distress . . . We think 2023 could present such an opportunity.”
Yet all this requires a dose of reality.
Unlike previous downturns, this one is happening at a time of rising interest rates that make private equity dealmaking more expensive.
Antitrust has been a concern for many dealmakers as Joe Biden’s watchdogs prioritise private equity regulation. Most of the heat remains on Big Tech groups, with Microsoft’s proposed takeover of Activision Blizzard still running through regulatory clearances.
Much of Wall Street expects the economy to go into a recession next year. While there are busier spots, such as in the energy and utilities sector, private equity firms, which have been large contributors to overall deal numbers, have pulled back.
A look at the Blackstone/Emerson deal shows how buyout groups can arrange large and complex transactions without broadly syndicated loan markets as banks all but stop funding leveraged loans.
While Blackstone was able to overcome major hurdles, there aren’t that many other firms with the size and scope to arrange a deal of that size on their own.