Global dealmaking set to break records after frenzied summer

A frantic summer of dealmaking has put 2021 on track to break records, with almost $4tn of deals already agreed since the start of the year, as companies rush to exploit cheap financing and bumper profits.

There were $500bn of transactions globally in the usually quiet month of August, up from $289bn in the same month last year, and $275bn in 2019. The surge has been fuelled by a mix of low borrowing costs, trillions of dollars in the coffers of private equity groups, and the return of animal spirits to corporate boardrooms.

The summer boom has helped push global mergers and acquisitions to a record $3.9tn year to date, according to data compiled by Refinitiv, more than double the amount from the same period last year, and up from $2.6tn in 2019.

At this pace, total M&A activity this year is set to overtake the all-time high hit in the runup to the financial crisis in 2007, when $4.3tn worth of deals were announced. 

“With most businesses generating record profits, having access to inexpensive debt and experiencing high share prices, it is difficult to see M&A activity slowing over the next six to 12 months,” said Frank Aquila, global head of M&A at law firm Sullivan & Cromwell. 

Many of the almost 40,000 deals announced since January have been large — running into tens billions of dollars — and include a record number of cross-border tie-ups, such as General Electric’s decision to sell its aircraft-leasing unit to Irish rival AerCap for more than $30bn, and the battle between Canada’s largest railway groups to buy Kansas City Southern for more than $31bn. 

The deal flurry has boosted revenues on Wall Street. In the most recent quarter, JPMorgan reported record global investment banking fees of $3.6bn, while Goldman Sachs’s fees rose by more than a third.

Big international law firms have also prospered, with many reporting record profits and partners enjoying bumper pay days.

This year’s deal frenzy has sparked a battle for talent on both sides of the Atlantic, pushing up salaries for junior lawyers and bankers.

M&A activity has also been broad-based, as most industrial sectors have enjoyed double-digit or triple-digit percentage increases in dealmaking compared with last year.

The tech sector has led the way, representing 21 per cent of all M&A activity, up from 16 per cent last year, marking the strongest proportion since the tech boom year of 2000. 

So far this year, tech companies have struck 8,742 transactions worth $832bn, up from $301bn worth of deals agreed in the same period last year, and $291bn in 2019.

Some of the largest tech transactions included Dell’s $52bn spin-off of VMware, Grab’s $40bn merger with a special purpose acquisition company, and Microsoft’s decision to buy voice recognition pioneer Nuance for $16bn. 

“High valuations of public tech companies are providing them with real currency to afford certain acquisitions — their stock is attractive to potential target companies,” said Atif Azher, a corporate partner at Simpson Thacher & Bartlett. 

“There is also an increased emphasis for businesses to use technology to help drive efficiency and connectivity, which has been accelerated by the pandemic,” he added. 

Dealmaking in financial services and real estate has also experienced a boom, with a string of big acquisitions, including Square’s $29bn all-stock acquisition of Australian “buy now, pay later” provider Afterpay and Vici Properties’ $17.2bn deal with MGM Growth Properties. 

“In the real estate sector, a depressed 2020 real estate market due to the pandemic is now leading to opportunities for consolidation and investment, especially given low-interest rates,” said Krishna Veeraraghavan, an M&A partner at law firm Paul Weiss.