M&A deluge will give way to a steady shower

LONDON, Dec 31 (Reuters Breakingviews) – It’s a good thing that M&A bankers are paid based on dealmaking, not their forecasting skills. Last December few rainmakers predicted that transactions would hit a record $5.8 trillion in the next 12 months. Though things may be a bit quieter in 2022, buyout firms and breakups should keep bankers busy.

The 64% year-on-year surge in announced global M&A by value read more , based on Refinitiv data, was buttressed by a deluge of deals in the $1 billion to $5 billion bracket. The overall value of these takeovers, like EQT (EQTAB.ST) and Hellman & Friedman’s $4 billion buyout of German pet group Zooplus (ZO1G.DE), accounted for one-third of the total. It’s probably no coincidence that transactions involving private-equity buyers like Blackstone (BX.N), which often hunt in that price range, more than doubled to $1.2 trillion.

Mega-mergers, like AT&T’s (T.N) $43 billion deal to combine its programming assets with Discovery, are becoming scarcer. Transactions worth more than $10 billion accounted for less than one-fifth of the total, compared with an annual average of more than one-quarter in the five years before the pandemic. That proportion could shrink further in 2022 as antitrust watchdogs become more hostile . Chipmaker Nvidia’s (NVDA.O) $70 billion acquisition of UK-based Arm, for example, is being scrutinised by authorities in the United States, European Union, China and Britain read more .

Surpassing or even matching the 2021 total will be tough read more . The figure was flattered by a pause in activity when the pandemic first struck in early 2020, shifting activity into the following year. The annual average over the two years was $4.7 trillion – still a record, but one-fifth lower than the puffed-up 2021 total. Higher interest rates and continued supply-chain problems could dull animal spirits. Special-purpose acquisition companies, which accounted for 10% of 2021 M&A, will struggle to repeat their performance. Though loads of listed blank-cheque vehicles are under pressure to find a target or return cash, they are struggling to persuade private investors to support their deals.

Private equity will remain active, though. U.S. buyout funds alone had almost $830 billion of cash in March, PitchBook data shows. That’s enough to fund more than $1.6 trillion of deals in the coming years, assuming debt accounts for about 50% of the average purchase, as in 2021. The recent breakups of General Electric and Toshiba (6502.T) could prompt other conglomerates to carve off units. UK drugmaker GlaxoSmithKline (GSK.L) has already committed to spin off its consumer health business. The M&A frenzy may have peaked, but bankers will hardly be twiddling their thumbs in 2022.

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CONTEXT NEWS

– Global mergers and acquisitions totaled $5.8 trillion in the year to Dec. 29, Refinitiv data showed, up 64% compared with the same period in 2020 and marking the busiest year on record.

– Private-equity buyouts more than doubled to $1.2 trillion, accounting for one-fifth of overall M&A.

Editing by Peter Thal Larsen and Karen Kwok

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