Dealmakers see ‘green shoots’ in M&A activity in election year

Manhattan skyline is seen during sunset in New York City, New York, U.S. March 29, 2023. REUTERS/Amanda Perobelli//File photo

NEW ORLEANS  – Mergers and acquisitions activity is poised to rebound later this year after a sluggish 2023 as the Federal Reserve is expected to cut rates and cash-flush buyers gear up for bigger deals as dealmakers see “green shoots” in the quarters ahead.

Some of the world’s most high-profile investment bankers and M&A lawyers speaking at the Tulane Corporate Law Institute conference in New Orleans said confidence levels have returned to boardrooms due to an improved interest rate outlook, slowing inflation, strong corporate earnings, and a robust stock market.

“We’re heading in the right direction and maybe we are getting to see green shoots,” said Scott Barshay, chair of the corporate department at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. “My gut is this time we are at the beginnings of an uptick and that is going to go on for some time.”

READ: Global M&A volumes to rise by 50% in 2024, says Morgan Stanley

Global M&A volumes this year through the first week of March surged 55 percent to $601.79 billion, compared to the same period a year ago, according to Dealogic data. The number of transactions worth over $10 billion jumped threefold to 10 signed deals.

In January, design software firm Synopsys reached a $35-billion deal for smaller rival Ansys. In February, Capital One agreed to acquire credit card rival Discover Financial in an all-stock deal worth $35.3 billion.

READ: Capital One to buy Discover Financial in $35.3-B all-stock deal

“I don’t know why you’re sitting here, you should go out and get those deals,” Bill Anderson, senior managing director and head of global activism and raid defense at Evercore, told the conference.

Regulatory scrutiny

Private equity dealmaking, however, remained muted this year, after a slump in leveraged buyout volumes due to a spike in financing costs that made larger deals harder to finance.

Lawyers and bankers also said it is still taking deals longer to complete amid regulatory scrutiny.

“The market standard now is not every company has to act with a sprint,” said Barshay, adding that the number of smaller transactions is poised to jump this year as they face less resistance from antitrust regulators compared to larger deals.

Investment bankers and lawyers expect a significant pickup in sponsor-backed deals during the second half of the year as debt financing is expected to become cheaper due to rate cuts. Private equity-backed deal volumes are up 22.5 percent so far this year.

This year’s U.S. presidential election in November is also prompting lawyers and bankers to plan ahead for deals that might face more regulatory scrutiny, with some saying they could see a brief pause in dealmaking around the time of the vote until there is more certainty on future policy.

“The only thing we know right now about the election is that we are likely to have the same candidates we had” for the 2020 election, said Audra Cohen, co-managing partner of the general practice group at law firm Sullivan & Cromwell.

Bankers and lawyers also expect a revival in dealmaking driven by shareholder activism, especially as a number of new activist funds have been launched. Even traditionally long-only investment funds are following the traditional activist playbook, and deploying tactics like pushing companies to launch strategic reviews or urging boardrooms to replace management.

“Private equity has a lot of dry powder, and there is a lot of capital that is currently not deployed,” said Evercore’s Anderson.