Global Credit Weekly

The case for a strategic M&A rebound

June 27, 2024 | Amanda Lynam

Key takeaways

  • The sharp increase in strategic M&A activity that was evident in 4Q2023 and 1Q2024 reverted to a more muted level in 2Q2024 (Exhibit 2), per data from Dealogic. That said, an April 2024 Ernst & Young survey of 1,200 CEOs highlighted increased receptivity for deal making over the next 12 months – motivated (in part) by a desire to obtain new technological capabilities (Exhibit 1).
  • As we have outlined previously, we believe CEO confidence in the macroeconomic backdrop and clarity on the cost of capital environment (not necessarily rate cuts) are the key ingredients for corporate deal-making to generate a sustained recovery from 2022’s muted levels. That said, focus on potential policy proposals (i.e., tariffs, taxes) related to the U.S. election could weigh on some large-scale/ transformational M&A activity, at least in the near-term.
  • Cash-rich and highly-rated investment grade firms are likely to have an advantage (relative to their lower-rated and more levered peers) in competing for assets in the current financing environment. This is likely to be yet another driver of dispersion in corporate credit – albeit more of a longer-term differentiator, as the benefits of technological developments become clearer.
  • Importantly for bondholders, the funding mix of the year-to-date announced strategic M&A transactions has been somewhat “creditor friendly” in aggregate, with an elevated share of “all stock” funded deals (Exhibit 6).
  • Separately, this week we also take stock of the alternative asset allocation patterns of a very large investor group, globally: pensions (public and private).

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Exhibit 1: Corporate CEOs are looking to M&A for gaining ground on technology
The factors global and regional CEOs perceive as the main strategic drivers for pursuing a transaction, per an April 2024 survey by Ernst & Young. CEOs were asked: "What are the main strategic drivers for pursuing acquisitions?"

Chart of Corporate CEOs are looking to M&A for gaining ground on technology

Source: Ernst & Young April 2024 Global CEO Outlook report (https://www.ey.com/en_us/ceo/ceo-outlook-global-report), BlackRock. Note: Only asked of those who plan to actively pursue a merger or acquisition. The respondents were allowed to select up to two responses.

Author

Amanda Lynam, CPA
Head of Macro Credit Research, Portfolio Management Group – Private Debt
Amanda Lynam, CPA, is Head of Macro Credit Research within the Portfolio Management Group - Private Debt. In this capacity, Amanda leads original market research across a range of asset classes, including global corporate debt markets as well as private debt, real estate and infrastructure lending.

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