* Second-quarter M&A down 25.5% amid recession fears
* Interest rate hikes drive U.S. dealmaking down 40%
* Asia Pacific sinks 10%, Europe up 6% on large buyouts
* Financing drought, valuation mismatch key hurdles
(Updates Friday item with IPO data)
LONDON/NEW YORK, June 24 (Reuters) - Global dealmaking is
entering an arid season as raging inflation and a stock market
rout curb the appetite of many corporate boards to expand
Russia's invasion of Ukraine in February and fears that an
economic recession is looming dealt a blow to merger and
acquisition (M&A) activity in the second quarter.
The value of announced deals dropped 25.5% year-on-year to
$1 trillion, according to Dealogic data.
"Companies are standing back from M&A in the short term as
they are more focused on the impact of a recession on their
business. The timing for dealmaking will come but I don't think
it's quite there yet," said Alison Harding-Jones, Citigroup
Inc's EMEA M&A head.
M&A activity in the United States plunged 40% to $456
billion in the second quarter, while Asia Pacific was down 10%,
Dealogic data showed.
Europe was the only region where dealmaking didn't crash.
Activity was up 6.5% in the quarter, largely driven by a frenzy
of private equity deals, including a 58 billion euro ($61
billion) take-private bid by the Benetton family and U.S. buyout
fund Blackstone for Italian infrastructure group Atlantia
Proceeds from global listings were down 84% to $33 billion
in the second quarter, according to Dealogic, with only 274
companies attempting to raise cash via an initial public
offering (IPO) compared to 852 in the same quarter last year.
"We are nervous about the back half of the year but
transactions are still happening," said Mark Shafir, global
co-head of M&A at Citigroup.
The largest deal of the quarter was Broadcom Inc's
$61-billion cash-and-stock buyout of VMWare Inc in the
Others included Elon Musk's proposed acquisition of Twitter
for $44 billion and a move by India's largest private
lender HDFC Bank to buy out its biggest shareholder in a $40
billion deal to create a financial services titan to tap rising
demand for credit.
With stock markets facing persistent turmoil, boardrooms are
wary of making expensive bets.
"We are unlikely to see a large number of megadeals and
buyouts getting done over the next couple of quarters. M&A is
hard to do when companies are trading at a 52-week low," said
Marc Cooper, chief executive of U.S. advisory firm Solomon
Cross-border transaction volume dropped 25.5% in the first
six months of the year. A traditional flurry of U.S. investments
in Europe did not occur in the wake of the Russia-Ukraine
Philip Morris International Inc's $16 billion bid for
smaller rival Swedish Match was the only notable cross-border
exception in a quarter dominated by domestic dealmaking.
"When you think about the psychology of executives and their
level of confidence to make a leap across borders, you need to
take into account the level of uncertainty in the world and how
that impacts timing," said Andre Kelleners, head of EMEA M&A at
Goldman Sachs Group Inc.
For an interactive version of the Reuters chart showing
global M&A and private equity volumes in the second quarter
click here: https://tmsnrt.rs/39TsaKX
Acquisition financing has become more expensive for
companies as central banks have hiked interest rates to fight
Even those that have the cash to undertake a deal - or are
using their shares as currency - find it hard to agree on price
in choppy markets.
"Stock market volatility is a big headwind to strategic M&A.
When you have stock market volatility, it's tough to have value
conversations and makes it hard to use stock as currency," said
Damien Zoubek, co-head of U.S. corporate practice and M&A at
Freshfields Bruckhaus Deringer.
In Europe, sharp falls in the value of the euro and the
pound made companies vulnerable to opportunistic overtures by
private equity investors.
Buyout funds have been a major driver of global dealmaking,
generating transactions worth $674 billion so far this year.
"Market dislocation offers a window of opportunity to
private equity funds as valuations are coming down," said
Umberto Giacometti, co-head of Nomura's EMEA financial sponsors
"There is lots of screening work under way on listed
companies for both take-private deals and stake acquisitions in
public companies. But without a price adjustment, activity
cannot properly resume," Giacometti said.
He predicted the average size of private equity deals will
shrink as banks close the taps on financing and private credit
funds become wary of signing big checks.
Going forward, dealmakers expect cross-border transactions
between the United States and Europe to pick up eventually, on
the back of a strong dollar and a widening gap between the
valuation of U.S. and European companies.
"With a slightly elevated level of visibility than what we
had earlier this year, you could expect capital flows to resume
and deal activity to pick up, including on the financing side,"
said Goldman's Kelleners.
But caution prevails as companies are still seeking to sever
their ties with Russia or limit their exposure to the region.
"Clients are increasingly looking inward rather than
outward," said Citigroup's Harding-Jones.
($1 = 0.9508 euros)
(Reporting by Pamela Barbaglia in London and Anirban Sen in New
York; Editing by Cynthia Osterman and Susan Fenton)