The further Wall Street gets from 2021, the more of an aberration it looks like.
Driving the news: The value of U.S. merger and acquisition activity fell 20% from the previous quarter — and is nearly halved from Q1 of last year.
Why it matters: It’s one more example of the chill that the Fed’s rate hiking campaign has shot into the markets.
- "The [rates] uncertainty is what dampens the appetite for dealmaking,” Suzanne Kumar, a VP with Bain & Co's global M&A practice, tells Axios. “It's less about the level and more about the ability to make an assumption about what interest rates will be.”
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- Rates, which have zig-zagged energetically over the last year, impact the perceived future value of companies, as well as the cost of borrowing to fund deals.
It all adds up to this: Right now, buyers fear overpaying, and sellers fear exiting near a bottom, as Axios' Dan Primack recently wrote.
- “The first quarter numbers were certainly underwhelming,” Kumar says.
But, but, but: There’s another way to look at these deal trends — it’s the case of the disappearing megadeal.
- The number of deals has held up — in Q1 it was higher than the prior two quarters and higher than the median stretching back to 2010. (Though it’s lower than 2021, of course.)
- In other words, investment bankers are still pretty busy, but with smaller deals at lower valuations. (Kumar notes that globally, the median valuation in Q1 contracted to a multiple of about 10 times earnings — from 15 times in 2021.)
What to watch: Whether the recent pair of bank failures injects enough uncertainty into markets to chill activity in the quarters to come. Any slowdown stemming from that crisis probably didn’t show up in the Q1 numbers.
