“A Perfect Storm”: Record-Breaking M&A, A SPAC Slowdown, Antitrust Action, Media Mega-Mergers And More From A Frantic First Half Of Deals In 2021

, “A Perfect Storm”: Record-Breaking M&A, A SPAC Slowdown, Antitrust Action, Media Mega-Mergers And More From A Frantic First Half Of Deals In 2021
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, “A Perfect Storm”: Record-Breaking M&A, A SPAC Slowdown, Antitrust Action, Media Mega-Mergers And More From A Frantic First Half Of Deals In 2021

This is an excerpt from Deal Flow, Forbes’ daily newsletter about big buyouts, big mergers and the rest of Big Finance. Want a new edition in your inbox every afternoon? Subscribe here.


1. Multitudinous mergers

The first half of 2021 ended this week. And in the realm of mergers, acquisitions and private equity, it was a six-month stretch unlike any other.

So we’re going to do something a little different in today’s newsletter. Instead of recapping the highlights of the past week, we’ll turn our rearview mirror to the entirety of 2021 so far—a stretch that’s been marked by meme stocks, tax talks, SPAC speculation and media consolidation.

But we’d be remiss if we didn’t start with this simple fact: By a wide, wide margin, the past six months were filled with more M&A activity than the start to any other year in this millennium.  

Globally, there were 28,175 M&A deals done between January 1 and the end of June, according to data provided by Refinitiv. That’s 27% higher than last year’s total and 7% higher than the first six months of any other year since at least 1999. And those deals had a record-setting combined value of $2.82 trillion—up 132% compared to last year, when the pandemic depressed activity, and nearly 20% more than the previous all-time high, from 2007.

The numbers are starkest in the U.S., where deal value is up a stunning 264% over last year. But the trend applies to deals in every market and deals of every size. Whether it’s M&A in Africa or Asia, whether it’s mega-deals or micro-deals, takeover activity has grown more frequent in 2021.

Marc Cooper, the CEO of investment bank PJ Solomon, offered a succinct summation of what continues to be one of the most hectic environments he’s ever seen.

“Transaction volume is still up dramatically, and prices are up, and there’s a whole heck of a lot of activity out there,” he told me.

Several different factors are driving this flood of activity—and some of them haven’t changed since early May, when I wrote previously about this year’s “frenzy” of mergers. Here’s a sampling:

The stock market has performed wonderfully over the past year-plus, driving up public company valuations. This means many targets are more likely to sell, because they will be able to fetch a higher price; but it also means some corporate buyers are more likely to go prospecting, because their own elevated stock makes for an attractive currency.

The market of potential buyers has perhaps never been bigger, with the emergence of hundreds of SPACs adding to the existing pool of corporations and private equity firms. After years of successful fundraising, those PE firms have no shortage of capital at their disposal. And many of the SPACs that have hit the market are already feeling the pressure to get a deal done within the two-year window before they will have to return capital to their investors.

Rock-bottom interest rates mean that, in addition to their plentiful capital reserves, buyers are also finding it very easy to finance deals. The private credit markets held up well to the stresses of the pandemic and continue to offer an attractive option to buyout targets.

Yes, we should probably mention the pandemic. Activity slumped during the second quarter of last year due to fears that the COVID-19 crisis could create a genuine economic cataclysm. That caused something of a bottleneck of transactions that were pushed back to this year. The pandemic shook things up across any number of industries, changing the fates of hundreds of companies, for better or worse. That’s also driving deals: Some companies look newly attractive, either for their newfound strength or because pandemic struggles have made them targets for opportunistic deals. Still other companies are reassessing their futures in the post-pandemic world, deciding either to pursue divestitures or make acquisitions to build up new areas of growth.

And then there is the potential that the tax rate on capital gains in the U.S. could be sharply increased in the months to come, driving plenty of asset owners to pursue sales now in hopes of locking in their profits at a lower tax rate and keeping as much money as they can away from Uncle Sam.

Any one of these factors on its own might lead to an uptick in deals. When they all happen at once, the result is new records.

“It’s just sort of a perfect storm for everyone rushing to get things done,” said Tony Balloon, a partner at the law firm Alston & Bird who focuses on cross-border M&A and other transactions.

This might all be a bit abstract to your average Jane. What does it matter for her life whether there were $2 trillion worth of deals or $2.8 trillion in the past six months?

The honest answer to that specific question is probably “not much.” But every one of the 28,000-plus individual deals conducted so far this year has the potential to change the way we live in some small way. If Jane likes to relax at night with a movie on Amazon Prime, she might note that Amazon’s planned purchase of MGM Studios is going to expand her viewing options. If Jane lives in Germany, then the planned mega-merger of local landlords Vonovia and Deustche Wohnen could have a very real impact on her rent. If she whiles away the hours by playing games on her phone, she might care that Electronic Arts has spent billions so far this year buying up new mobile gaming assets.

As the deals pile up, the likelihood gets higher and higher than some of the mergers being conducted will change the way we navigate the world. In our capitalist society, companies are people. And those “people” can be a powerful force.

On that note, let’s take a look at some of the other highlights and takeaways from this record-breaking stretch…

2. The rise of the mega-deal

I wrote earlier that M&A deals of every size have grown more frequent in the past six months. But billion-dollar deals are booming the most. Entering 2021, the most transactions worth between $1 billion and $5 billion that had ever been done in the first half of a year was 322, according to Refinitiv data. For M&A deals worth more than $5 billion, that figure was 82. This year, dealmakers have conducted 422 takeovers in the low billions and another 97 worth at least $5 billion. And in both size buckets, the combined value of those deals is also at an all-time high.

The largest buyout agreement of the year so far came last month, when Blackstone, The Carlyle Group and Hellman & Friedman signed on to acquire Medline Industries for $30 billion. With both its staggering size and the collaboration of three major private equity firms, the move was reminiscent of private equity’s pre-financial crisis landscape circa 2006 and 2007. And some experts think that other similar deals could be on the way.

“Obviously, it’s hard for any one individual fund to write a multibillion-dollar check,” said Cooper, the CEO of PJ Solomon. “But if you get a couple and it’s a billion-dollar check, or a $750 million check, that’s a great way to put money to work rapidly, particularly for some of these mega-funds that are approaching $15 billion or $20 billion.”

3. Antitrust antipathy

Mega-deals are everywhere. But regulators around the world seem to be growing increasingly wary of these huge transactions and the huge companies behind them. A push of antitrust action against M&A enormity has been another key storyline to watch so far in 2021, with the most recent example being a growing belief that U.S. regulators are set to scuttle a $33 billion combination of insurance giants Aon and Willis Towers Watson.

In the U.K., regulators have raised national security concerns about Nvidia’s plans to purchase chipmaker Arm for $40 billion. The U.K. is also holding up Illumina’s attempt to buy cancer-testing startup Grail for $7.1 billion. Visa walked away from a deal to buy Plaid earlier this year after the U.S. Department of Justice tried to block the takeover, and more recently, the FTC forced Speedway and 7-Eleven to sell off a chunk of assets in order to avoid further scrutiny of a $21 billion deal. And then, of course, there is the long-running saga of Washington, D.C. vs. Big Tech, with an examination of Amazon’s plans to buy MGM Studios serving as the latest battleground.

4. Public offerings abound

For the investors and entrepreneurs who might be seeking an exit to capitalize on sky-high valuations or head off any potential tax changes, an outright sale isn’t the only option. The IPO market has also been booming so far in 2021, with names like Coinbase, Bumble, Didi Chuxing, Petco and Krispy Kreme leading a race to Wall Street.

As of July 2, IPOs in the U.S. had raised $79.9 billion in proceeds, per data from Renaissance Capital, already a higher figure than all but one of the past 10 years. And there have already been 216 offerings, on pace to blow away the old decade-high for IPO frequency. When it’s all said and done—Robinhood and Instacart are among the names that could go public in the months go come—2021 might go down as the most lucrative year for IPOs on record.

5. The SPAC slowdown

The great SPAC surge of 2020 continued in the first few months of 2021. But then, it came to a screeching halt. After the SEC announced in early April that it was considering new guidance on SPAC IPOs, the rate of new SPAC issuances fell by some 90%.

But the hundreds of SPACs that hit the market in 2020 and early 2021 are still on the market and looking for targets. Many continue to strike deals with companies in up-and-coming industries such as electric vehicles or flying taxis. Others are hunting bigger names. The year’s largest blank-check merger so far came in April, when Singapore-based ride-hailing and payments provider Grab agreed to combine with a vehicle backed by Altimeter Capital at a $40 billion valuation. And the year’s most confusing SPAC deal came in June, when Bill Ackman announced plans to use his record-breaking Pershing Square Tontine Holdings vehicle to invest in Universal Music Group’s forthcoming IPO will still holding onto a chunk of the SPAC’s capital to pursue another deal down the line.

6. The pandemic effect

It is in many ways bizarre that, as the global COVID-19 death toll has steadily mounted over the past 15 months, the financial markets have largely been engaged in a period of breakneck growth. But the presence of the pandemic is having a continuing effect on many aspects of dealmaking—including creating something of a chill on cross-border deals.

Plenty of cross-border transactions are still getting done: The frequency of such deals is actually up 33% compared to last year, per Refinitiv data. But experts including Tony Balloon of Alston & Bird, who we heard from earlier, are confident the totals would be even higher in a different environment.

“Unless you can really get it all done via email and video conference, it’s just taking a long time,” he said. “I don’t think you’ll see big, big movement in the cross-border space until the market has lifted mandatory quarantines. Because most of us are unwilling to go sit somewhere for 14 or 21 days and just cool their heels why they’re waiting to actually conduct business.”

7. Drilling down

The first half of the year was marked by several multibillion-dollar deals in the oil and gas sector, aided by an ongoing recovery of oil prices after a stunning descent into negative territory last April. There were nearly $120 billion worth of transactions in the space during the first six months of the year, per Refinitiv, a higher deal value than in every other sector except software and biotechnology. Pioneer Natural Resources has been the most active acquirer, buying DoublePoint Energy for $6.4 billion and Parsley Energy for $4.5 billion.

“A lot of it is survival in this new world,” Marc Cooper told me. “It’s a moment where, at the very least, you have a commodity price that allows you to figure out what a merger might look like, as opposed to the commodity prices which could have suggested that many of these companies were underwater.”

That volatility probably isn’t going anywhere. So in some sense, Cooper thinks acquirers are striking while the iron is hot, with consolidation and new synergies functioning as a buffer against declining prices.

“You can’t be just a small player and be able to spend the money you have on drilling and finding new oil,” he continued. “You have to have some size.”

8. The media is the merger

The biggest M&A deal of the year so far was unveiled in May, when AT&T announced plans to spin off its WarnerMedia unit through a merger with Discovery that, when completed, will create a content colossus with a valuation that could reach $130 billion. And that’s just one example in a series of high-profile deals conducted so far this year in various areas of the industry, with some big names moving to challenge Netflix and Disney in the world of streaming and others deciding to pull back from media content altogether.

Prior to lining up its WarnerMedia divestiture, AT&T agreed to spin out DirecTV and related TV assets and sell a 30% stake in the new business to TPG, with the price marking a steep discount to what AT&T paid for DirecTV just six years ago. Verizon, meanwhile, signed a deal to sell Yahoo, HuffPost and a host of its other digital media assets to Apollo Global Management for about $5 billion. And, as mentioned earlier in the context of antitrust, Amazon inked a deal to buy MGM Studios for nearly $8.5 billion in a bid to beef up its streaming offerings.

9. What’s next?

It’s impossible to predict the future. But just about everyone I’ve spoken to in recent months about the state of the M&A and buyout market expects the good times to continue to roll through 2021.

When activity does eventually slow down—and that is indeed a “when,” not an “if”—the tightening of interest rates by the Federal Reserve may be a factor. Spurred by signs of potentially troubling inflation, the Fed announced in June that it now expects to raise interest rates in 2023, sooner than it had previously forecasted. If that timeline continues to shift closer to the present, the easy money that has helped fuel the recent surge in activity could begin to dry up.

“That is the number one issue that could affect the stock market and merger market, is if in fact the Fed determines it is time to tighten,” Cooper said.

Until then, dealmakers may very well continue to rewrite the record books.

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