Whatâs Going On Here?Data out last week showed that global dealmaking hit its lowest level since the start of the pandemic last quarter, now that every cent has become that much more precious. What Does This Mean?It was a record year for mergers and acquisitions (M&A) last year, and there were a couple of key reasons why. First, interest rates were so low that companies wouldâve been crazy not to borrow cheap money while they could. And for another, they didnât even need to borrow cash: stock prices were so high that companies could pay up using their own shares instead.
But this yearâs taken a turn: central banks have been hiking interest rates to slow down rising prices, which has made it more expensive to borrow cash. And last quarterâs stock market dip meant companiesâ shares suddenly didnât go nearly as far. All that, at a time when higher costs are weighing heavier on their bottom lines. Say no more: the value of deals struck was 23% lower than the same time last year. Why Should I Care?Zooming in: Silver linings.
Still, itâs all relative, and companies were still keen to buy up other businesses. Firstly, this was the seventh-straight quarter where companies shook hands on a total of over $1 trillion worth of M&A. Secondly, they signed more deals worth over $10 billion than the same time last year. And thirdly, private equity groups â which buy struggling firms, improve them, and then sell them on for a profit â spent a record amount on deals during the first quarter of the year.
The bigger picture: Your luck is running out, big banks.
Investment banks charge fees for advising on M&A, so this slowdown has analysts expecting some of the worldâs biggest banks â including Citigroup and JPMorgan â to report a drop in quarterly profits for the first time in nearly two years. That might explain why JPMorganâs and Citiâs stocks have fallen around three times as much as the US stock market this year. | 