Dealmaking frenzy set to bust records
A frantic northern summer of dealmaking has put 2021 on track to break records, with almost US$4 trillion ($5.5t) of deals already agreed since the start of the year, as companies rush to exploit cheap financing and bumper profits.
There were US$500 billion of transactions globally in the usually quiet month of August, up from US$289b in the same month last year, and US$275b in 2019. The surge has been fuelled by a mix of low borrowing costs, trillions of dollars in the coffers of private equity groups, and the return of animal spirits to corporate boardrooms.
The summer boom has helped push global mergers and acquisitions to a record US$3.9t year to date, according to data compiled by Refinitiv, more than double the amount from the same period last year, and up from US$2.6t in 2019.
At this pace, total M&A activity this year is set to overtake the all-time high hit before the financial crisis in 2007, when US$4.3t worth of deals were announced.
“With most businesses generating record profits, having access to inexpensive debt and experiencing high share prices, it is difficult to see M&A activity slowing over the next six to 12 months,” said Frank Aquila, global head of M&A at law firm Sullivan & Cromwell.
Many of the almost 40,000 deals announced since January have been large — running into tens billions of
It is difficult to see M&A activity slowing over the next six to 12 months. Frank Aquila, Sullivan & Cromwell
dollars — and include a record number of cross-border tie-ups, such as General Electric’s decision to sell its aircraft-leasing unit to Irish rival AerCap for more than US$30b, and the battle between Canada’s largest railway groups to buy Kansas City Southern for more than US$31b.
The deal flurry has boosted revenues on Wall Street. In the most recent quarter, JPMorgan reported record global investment banking fees of US$3.6b, while Goldman Sachs’s fees rose by more than a third.
Big international law firms have also prospered. The deal frenzy has sparked a battle for talent on both sides of the Atlantic, pushing up salaries for junior lawyers and bankers.
M&A activity has also been broadbased, as most industrial sectors have enjoyed double-digit or triple-digit percentage increases in dealmaking compared with last year.
The tech sector has led the way, representing 21 per cent of all M&A activity, up from 16 per cent last year, marking the strongest proportion since the tech boom year of 2000.
So far this year, tech companies have struck 8742 transactions worth US$832b, up from US$301b worth of deals agreed in the same period last year, and US$291b in 2019.
Some of the largest tech transactions included Dell’s US$52b spinoff of VMware, Grab’s US$40b merger with a special purpose acquisition company, and Microsoft’s decision to buy voice recognition pioneer Nuance for US$16b.
“High valuations of public tech companies are providing them with real currency to afford certain acquisitions — their stock is attractive to potential target companies,” said Atif Azher, a corporate partner at Simpson Thacher & Bartlett.
Dealmaking in financial services and real estate has also had a boom, with a string of big acquisitions, including Square’s US$29b all-stock acquisition of Australian “buy now, pay later” provider Afterpay and Vici Properties’ US$17.2b deal with MGM Growth Properties.