Global deals are falling
Lowest since the pandemic began: Deals worth $1 billion were closed in the first quarter of 2022, down 23 percent from the same period last year
Global transaction volumes have fallen to their lowest level since the coronavirus pandemic began, as rising inflation, tighter regulations and the war in Ukraine have caused a slowdown in previously record-breaking M&A numbers.
Deals worth just over $1 billion were closed in the first quarter of 2022, down 23 percent from the same period last year, with M&A activity declining across continents, according to data from Refinitiv.
Despite the slowdown, private equity groups had their strongest start to the year yet as they deployed the huge cash stash accumulated during the pandemic. Buyout groups supported $288 billion worth of transactions, up 17 percent compared to the first three months of 2021.
<a class="tvreplink" target="_blank" href="https://www.tradingview.com/chart/?symbol=Nasdaq%3AMSFT">Microsoft's $75 billion takeover of games maker Activision Blizzard is its biggest deal so far this year, followed by the €21 billion purchase of Mileaway, Blackstone's European warehouses, by Prologis, the world's largest warehouse owner.
Elliott Management led the two largest private-equity-backed deals of the year when it acquired software company Citrix for $16.5 billion with Vista Equity Partners in January and acquired TV broadcaster Nielsen for $16 with Canadian group Brookfield in late March billion USD bought.
Overall M&A activity has slowed as investors and executives assess tighter regulation on both sides of the Atlantic, rising inflation and Russia's invasion of Ukraine. The Biden administration has tightened scrutiny of tech and healthcare deals as it seeks to combat anti-competitive practices.
"Uncertainty stemming from geopolitical tensions, slower GDP growth, inflation and the commodity cycle would normally dampen M&A activity. But CEOs' and boards' ambitions to grow their companies remain high," said Avinash Mehrotra , Global Head of Activism and Shareholder Advisory at Goldman Sachs.
The decline in transactions follows two record years in which stimulus measures to combat the aftermath of the coronavirus pandemic led to a boom in stock markets and record transactions.
A sharp slump in tech stocks early in 2022 slowed transactions, followed by the outbreak of war in Ukraine, which led to further declines as global equity investors began to anticipate rising geopolitical tensions and inflation.
"It takes a while for expectations to change," said Jon Winkelried, head of private equity group TPG. "When you experience a disruption, there is a moment when business activities slow down," he added.
The value of abandoned deals rose to $215 billion in the first quarter of 2021, the highest level since 2018. Almost three-quarters of all abandoned deals involved a European target, reflecting tighter regulatory policies from UK and European competition authorities.
The number of abandoned deals involving special takeover companies has also increased as the merger frenzy of the past two years has given way to heightened regulatory scrutiny and a string of poor results.
On Wednesday, the US Securities and Exchange Commission proposed a sweeping reform of the spacs that would curb the liberal forecasts and bring the blank check trades more in line with traditional exchange listings.
Spac mergers accounted for just 3 percent of total global transaction volume, compared to 17 percent for the same period in 2021.
"There is as much activity as ever to bring Spacs and private companies together, but it is difficult to complete a significant number of transactions," said Ryan Maierson, Partner at Latham & Watkins, adding that many Spacs are struggling due to the increasing repayments from investors no longer have the necessary cash to make mergers worthwhile.
The number of Spac IPOs is down 78 percent this year compared to the first quarter of 2021, while only 38 mergers have been completed.
Jocelyn Arel, a partner at Goodwin Procter, said investors were waiting for regulatory clarity: "I would attribute the pullback of retail investors and most of the Spacs trading below [their $10 listing price] in part to regulatory uncertainty.