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Megadeals Make a Comeback to Power $660 Billion M&A Revival

(Bloomberg) — A rush of megadeals is powering a rebound in mergers and acquisitions, bringing some much-needed relief for investment bankers after two years of subdued activity.

Global deal values are up about 21% year-on-year to more than $660 billion as the first quarter draws to its close, according to data compiled by Bloomberg. That’s thanks in large part to transactions like credit-card issuer Capital One Financial Corp.’s proposed $35 billion takeover of rival Discover Financial Services and chip designer Synopsys Inc.’s agreement to buy software developer of Ansys Inc. for an almost identical sum. 

Rising stock markets and the end of aggressive interest rate hikes by central banks have combined to give buyers the confidence and capital to pursue their targets. In total, there have been 10 deals valued at $10 billion or more announced this year — double the number at this point in 2023. 

But it will be a while before dealmakers can truly start to celebrate. Rate cuts haven’t come as quickly as some had hoped and tough scrutiny by antitrust regulators continues to keep some buyers on the sidelines, advisers say. Banks are also digesting the effects of consecutive years of falling M&A values, which have caused bonus pools to evaporate and are still leading to job cuts across Wall Street. 

“It’s a better start than last year but it’s not quite the bonanza that people hoped for yet,” said Tom Miles, head of Americas M&A at Morgan Stanley, which helped advise Discover on the Capital One deal. “There weren’t as many deals happening, even compared to last year, but it felt better because the deals were bigger.”

Regionally, dealmakers in the US have led the charge in the opening months of 2024. 

As well as the Capital One-Discover and Synopsys-Ansys deals, Diamondback Energy Inc. agreed to buy fellow Permian Basin driller Endeavor Energy Resources LP for $26 billion; Hewlett Packard Enterprise Co. said it would acquire Juniper Networks Inc. for $14 billion; and BlackRock Inc. struck a $12.5 billion takeover of Global Infrastructure Partners.

“It’s a healthy sign when the really big deals can hit because that takes a little more confidence than the stuff that’s a little more tactical,” said Brian Haufrect, co-head of Americas M&A at Goldman Sachs Group Inc., which helped advise Endeavor and Juniper on their deals. “After two down years in a row, this should hopefully be the official start of the next bull market.”

Private equity firms, whose rampant dealmaking helped fuel the last M&A boom in 2021, are also beginning to return to the fore in a sign that banks have started loosening the purse strings when it comes to financing bigger buyouts. 

In February, a consortium led by Stone Point Capital and Clayton Dubilier & Rice took a majority stake in Truist Financial Corp.’s insurance brokerage business, valuing the asset at $15.5 billion. More recently, KKR & Co. has agreed to multibillion-dollar acquisitions of a software business from Broadcom Inc. and German renewable-energy producer Encavis AG.

“PE needs to come back for the M&A market to come back,” said Vanessa Dager, head of North America advisory at BNP Paribas SA. She said that “concerns around valuation and the ability for other sponsors to step up and pay the right price,” are still holding back private equity firms from trying to sell big companies in their portfolios.  

While signs of a recovery have arrived sooner than some predicted at the end of last year, there will be challenges to nurturing it through the rest of 2024. Uncertainty over the start and pace of rate cuts by central banks, antitrust probes, ongoing wars in Europe and the Middle East and upcoming national elections around the world — including in the US — are keeping dealmakers on their toes. 

“People are very focused on the election but, for the majority of M&A, it’s not stopping them for now,” said Dager at BNP Paribas. “If it’s a deal that’s big and visible, people might delay as we get closer to November.”

–With assistance from Dinesh Nair and Ben Scent.

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