Death of mega deals as debt costs rocket

The drought in high level corporate dealmaking could be even longer than the one that followed the start of the pandemic, the UK boss of PwC has predicted.

Kevin ellis, UK chairman of the big four accountancy and consulting firm, said the quiet last quarter of 2022 looked set to extend until the second half of this year.

ellis, speaking at the World economic Forum in Davos, told the Mail that the ‘top level of deals’ was slowing down amid a ‘hard’ debt market – after surging inflation drove central banks to hike the cost of borrowing sharply.

‘You won’t see the big mega deals that you’ve seen in the past for a little while because the debt market isn’t capable of funding them,’ ellis said.

The comments come days after a clutch of Wall Street banks counted the cost of a slump in deals as revenues in their investment banking arms slumped by more than half, prompting JP Morgan to cut bonuses for its investment bankers by up to 30pc.

ellis was however bullish about the prospects lower down the corporate food chain, as well as restructuring when stricken firms run into trouble, all of which earn PwC lucrative consultancy fees.

‘There will always be dealmaking,’ he said. ‘The size and scale will be different. If you go back to March 2020 we saw a void in dealmaking but it came back with a vengeance in September because there’s still a lot of money out there in the hands of private equity, sovereign wealth and corporations, and therefore they won’t want to miss the uptick.

‘So although there might be a bit of a void in the deal market now at the highest levels there’s still activity in the mid-range and it will come back fast as it did after Covid.

‘We’re still seeing quite a lot of deal activity and our deal business is still growing.’

ellis said there would also be ‘a lot of activity in the restructuring market’. he added: ‘It will change again. What we saw in the last time we had this slowdown with 2020 and Covid, the slowdown was for a much shorter period than we expected.

‘I think the first signs of positivity like we saw in the dealsled recovery in September 2020 will probably happen again in the second half of this year.’

he said the slump started in the last quarter of last year. If his prediction is right it would mean the ‘void’ in major deals potentially lasting longer than the sixmonth freeze between March and September of 2020.