When will the corporate dealmaking boom end? | FT Big Deal


When will the record boom in corporate dealmaking
that began over five years ago come to an end? It’s a question that dealmakers, who make
millions advising on transactions, don’t like to ponder too often. Since 2014, more than $20tn worth of deals
have been reached in over 250,000 transactions. There are a few big picture reasons why dealmaking
has thrived. Low interest rates make for cheaper borrowing. Rising stock prices that allow for equity
to be used in deals. Economic growth that hasn’t necessarily
translated into earnings growth. And most importantly, a stable geopolitical
backdrop. Those are the conditions under which corporate
executives tend to feel the most confident about buying or merging with another company. That is why you always hear dealmakers talking
about boardroom confidence as a leading indicator of M&A activity. The gains over the past years have survived
unexpected geopolitical events. That includes Britain’s vote to exit the
European Union in 2016, and later, the election of Donald Trump to president of the United
States. Each has affected M&A in its own way. The prospect of Brexit has forced UK companies
to prepare for the economic impact of Britain’s potential withdrawal from the EU. The boom in outbound Chinese dealmaking, which
took place in the first stretch of the M&A wave has come crashing down with Donald Trump’s
trade war against China. China has responded by combining state-owned
companies to create national champions of the future. But despite a few short-lived slowdowns in
activity, the blockbuster deals keep coming. That is particularly the case in the US, which
unlike Europe, keeps pumping out megadeals. One thing that could bring this deal party
to an end is a recession. This would have a big negative impact on transactions. After all, stability is probably the most
important ingredient for dealmaking. Think about it this way, nobody wants to buy
at the top of the market, just before valuations collapse.

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