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6 Minutes Read by (Reuters) – LONDON (Reuters) – Companies continued to borrow cheaply and spend their cash reserves on transformative purchases to reposition themselves for the post-COVID era, as global mergers and acquisitions (M&A) activity smashed records for the second quarter in a straight this year. A banker counts US dollars at a bank in Westminster, Colorado, in this file photo. Wednesday, November 3, 2009. Rick Wilking/REUTERS/File Photo Despite a slowdown in activity by blank-check firms, $1.5 trillion in deals were disclosed in the three months ending June 30, more than any other second quarter on record and up 13% from the record first quarter of the year, according to Refinitiv data. “This is a situation we haven’t seen before,” Alison Harding-Jones, Citigroup’s director of M&A for Europe, the Middle East, and Africa, said. “We have highly supportive financing markets paired with the demand to come out of COVID-19 and reorganize entire organizations.” “These high levels of activity are expected to persist throughout the summer,” she noted. When compared to the same quarter last year, when the world’s largest economy came to a halt due to the pandemic, second quarter volumes in the United States increased 440 percent to $699 billion in M&A agreements. Because of President Joe Biden’s proposed tax hikes, some businesses have rushed to close agreements before the proceeds are taxed at a higher rate. “Many deals are taking place in order to declare and close before the year’s conclusion. From a tax standpoint, it makes sense on all fronts “JPMorgan Chase & Co. co-head of global M&A Anu Aiyengar Asia Pacific dealmaking increased by 104 percent to $327 billion, while Europe saw a 50 percent increase to $293 billion. Companies hedged their risks and avoided hunting outside their home soil, concerned of rising protectionism and geopolitical concerns between China and the United States, and made all of the quarter’s largest transactions locally. “By almost every measure you can think of, cross-border activity in the United States has fallen,” said Vito Sperduto, co-head of global M&A at RBC Capital Markets. One of the few large cross-border mergers to top the quarterly rankings was the $40 billion merger of Southeast Asia’s largest ride-hailing and food-delivery firm, Grab Holdings, with U.S. blank-check firm Altimeter. SIZE DOES MATTERWhile the global deal count fell 10% in the second quarter compared to the first, the M&A frenzy resulted in a 127 percent increase in transaction value, with acquisitions worth more than $5 billion up 127 percent. In the United States, AT&T merged its content subsidiary WarnerMedia with rival Discovery to form a $150 billion media conglomerate, while in Europe, Vonovia and Deutsche Wohnen merged for $34.5 billion to become a $34.5 billion real estate conglomerate. “This crisis has reset corporations, and their credo is now simplification and digitisation as they attempt to become more focused and supplement their business model with new technology,” according to George Holst, head of BNP Paribas’ corporate clients group. With a combination of mergers, spin-offs, and corporate reorganizations involving the likes of Dell Technologies Inc and Dutch-listed technology investor Prosus NV, the telecoms, media, and technology (TMT) industry led the M&A charts. Companies across the board have taken steps to examine their operations and address non-performing units, fearful of falling prey to activist investors. “We anticipate a lot of sell-side action in the second part of the year, as many corporations are currently considering carve-outs. They believe it is the ideal time to refocus their operations and sell non-core assets “said Tariq Hussain, Jefferies’ European M&A head. Despite the enthusiasm, SPAC listings fell sharply in the second quarter as investors grew skeptical of the asset class and authorities strengthened their scrutiny on blank-check companies. “SPACs are a powerful dealmaker, but the types of SPACs that will thrive in the future are more institutional in nature. Investors are no longer blindly investing in these vehicles unless they have a compelling story and management team “Dominic Lester, Jefferies’ European head of investment banking, said as much. QUICK AND EXTREMELY EXTREMELY EXTREMELY The drop in SPAC activity was mainly offset by a frenzy of private equity-backed buyouts, which increased by 152 percent to $512 billion in the first half of the year, accounting for 18% of worldwide M&A volumes. “What we’re seeing right now is capital scarcity. The cost of capital is clearly influencing the activity we’re seeing from strategic and sponsor acquirers alike “BMO Capital Markets’ head of worldwide M&A, Lyle Wilpon, stated. Private equity assaults were swift and furious in the United Kingdom, Europe’s largest M&A market, with numerous publicly traded companies, such as asset management services provider Sanne, getting multiple approaches before agreeing to a takeover agreement. According to dealmakers, a likely interest rate hike in the second half of the year could make financing circumstances for investment funds less favorable, but the need to deploy money will stay constant for the next few quarters. “Sophisticated private equity firms’ dry powder is at record highs, indicating significant buyer interest in target companies,” said Steven Geller, co-head of global M&A at Credit Suisse. However, the current level of activity may not be long-term sustainable. “Is it possible to grow a business based on such a large number of transactions? Because companies must process what they’ve done thus far, we’re more than likely to see a slight stabilization “UBS’ Marc-Anthony Hourihan is the worldwide co-head of M&A. Pamela Barbaglia and Anirban Sen contributed reporting; Gwenaelle Barzic contributed additional reporting; and Stephen Coates edited the piece./nRead More

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