M&A seen slowing ahead of US elections after uneven third quarter

Dealmakers are bracing for a slowdown in global mergers and acquisitions in the fourth quarter as companies postpone pursuing big targets ahead of the U.S. elections, hoping this will only be a temporary setback before a rebound next year.

Deals announced worldwide in 2024 totaled $846.8 billion as of Sept. 25, up 14 per cent from the year-earlier period, Dealogic data showed. Of that, U.S. M&A volume was down 8 per cent to $338 billion, with stock gyrations, regulatory scrutiny and rates putting a dampener on activity.

Dealmaking was more robust outside North America, with Asia-Pacific surging 54 per cent to $273 billion on the back of some large deals - with the figures including a proposed cross-border convenience store bid. Europe climbed 7 per cent to $160 billion, the data showed.

Companies are starting to put off their pursuit of transformational deals until after the U.S. presidential elections in early November, investment bankers and lawyers said, as they want more certainty around regulatory and economic policies under a new administration.

Tom Miles, global co-head of M&A at Morgan Stanley, said historically, such deals have been a driver of overall deal volume. "It is clear that the lack of larger deals is a direct result of some of the regulatory pressures that exist," Miles added.

However, transactions in the $1 billion to $10 billion range were up 27 per cent. During the quarter, the total number of deals worth $5 billion to $10 billion rose to 12 from 10 a year earlier, the Dealogic data showed.

Candy giant Mars' $36 billion takeover of Cheez-It maker Kellanova, Blackstone's $16 billion buyout of Australian data center operator AirTrunk, and Verizon's $9.6 billion acquisition of Frontier Communications ranked as the largest deals of the quarter. Canadian convenience store giant Alimentation Couche-Tard's attempted $38 billion takeover of Japan's Seven & i was rebuffed earlier in September.

Companies flush with cash are focusing on deals that face minimal risk of regulatory hurdles.

"Companies are looking to do big, creative deals, but will only pull the trigger over the next couple of months if there is low risk," said Jay Hofmann, co-head of M&A for North America at JPMorgan.

Companies also want to avoid becoming "a campaign talking point" in the election season, the dealmakers said, citing the example of Nippon Steel's $15 billion bid for U.S. Steel that is facing opposition from both Democratic and Republican lawmakers.

PENT-UP DEMAND
Bankers are hoping the fourth-quarter slowdown will be temporary, with a rebound next year after the U.S. elections and as the Federal Reserve cuts rates to guide the economy to what investors hope will be a "soft landing."

Frank Aquila, Sullivan & Cromwell's senior M&A partner, said cross-border dealmaking is poised for a rebound as stronger earnings growth from U.S. companies compared with their European counterparts make them attractive targets for non-U.S. buyers.

Eric Tokat, co-president of investment banking at Centerview Partners, echoed the sentiment. "I do anticipate 2025 to be a robust year for M&A," he said. "There's quite a bit of activity across the board. The question is, which ones turn into actual large deals."

PE RETURNS?
Lower interest rates also bode well for private equity firms, whose debt-fueled buyouts were hit hard by the Fed's aggressive rate hikes in the aftermath of the pandemic to fight inflation. The world's biggest private equity firms, armed with tens of billions of dollars, have limited time under their terms to invest that money and are preparing to pursue targets they had shied away from previously, the bankers said.

"We're seeing private equity firms looking at bigger companies again, whereas for quite a long period of time now, they've been very focused on smaller, mid cap type situations," said Dietrich Becker, president and head of Europe at Perella Weinberg Partners.

Global private equity-led buyouts during the quarter jumped 42 per cent to $166.2 billion, buoyed by an improved financing market.

Private equity activity would also boost the initial public offering market. "Sponsors who are buying from sponsors or from corporates are increasingly looking at IPOs as an exit base case," said Carsten Woehrn, co-head of M&A in EMEA at Goldman Sachs.

Still, fortunes are diverging among sponsors. The total number of deals signed during the quarter fell 11 per cent to 2,915, as larger transactions helped offset declines from smaller deals worth $500 million or less.

"This year a lot of small and mid-cap private equity funds haven't had luck raising a new fund quickly, so they don't have the fresh capital to deploy and that has muted the velocity of deals in the smaller category as well," said Jason Sobol, co-head of U.S. investment banking at Evercore.