M&A hit record high during first half 2021: Refinitiv

Dive Brief:

The value of both U.S. and global mergers and acquisitions hit record highs during the first half of 2021, with $1.3 trillion in U.S. deals accounting for 47% of the $2.8 trillion in worldwide M&A, according to Refinitiv.
Amid tougher oversight by the Securities and Exchange Commission (SEC), special purpose acquisition companies (SPACs) announced 201 business combinations totaling $387.4 billion during the first half of the year, the company said.
Several megadeals — or transactions exceeding $10 billion — fueled the total in U.S. deal-making value, including the $63.3 billion acquisition of Warner Media by Discovery, the $52.2 billion spin-off of VMware by Dell Technologies and the $33.2 billion acquisition of Kansas City Southern by Canadian National Railway.

Dive Insight:

Deal-making will probably remain robust throughout the remainder of 2021, stoked by several factors including unusually low borrowing costs and a snap-back in economic growth, according to M&A specialists.

"As far as the overall landscape, I don’t see anything that’s going to change dramatically in the next six months," Matthew Toole, director of deals intelligence at Refinitiv, said in an interview. "The overall conditions that are supporting this amount of M&A and consolidation are here to stay for the rest of this year."

In the U.S., leading stock indexes have recently hit record highs and the Federal Reserve in June pledged to press on with record accommodation, holding the benchmark interest rate near zero and buying $120 billion in bonds every month.

The U.S. and global economies are bouncing back from the pandemic-induced downturn and will likely grow this year by 6.4% and 6%, respectively, according to the International Monetary Fund.

Also, private equity firms hold a record $1.6 trillion in "dry powder, putting increasing pressure on deal-makers to identify investment opportunities quickly as the recovery picks up," according to Preqin. "Current trends for deals show no signs of slowing."

During the first half of 2021, private equity firms announced more than 6,500 deals totaling $533.3 billion worldwide, or twice the value during the same period last year, Refinitiv said.

Eventually, inflation and higher interest rates may pose a threat to M&A, Toole said, while noting that deal-making in recent years stayed healthy despite Brexit, trade tensions, political unrest and the pandemic. "It’s hard to see one huge event that will potentially derail a lot of this."

The SEC inhibited SPAC IPOs in April by issuing guidance cautioning companies about the accounting treatment of SPAC warrants and the liability risk of forward-looking disclosures. SEC staff said in an April 12 statement that SPAC warrants, depending on their terms, shouldn’t be treated as equity investments, but as liabilities.

Yet the SEC restrictions and other obstacles will eventually strengthen investor trust and set the groundwork for a rebound in SPAC deal-making, Duff & Phelps said in a report.

Refinitiv estimates 500 SPACs are looking for target companies, Toole said, adding that even with tougher oversight "those companies are still going to want to strike a deal."

Global deal-making involving technology companies surged to a record $671.6 billion during the first half of 2021, or more than three times the level during the same period last year. The number of technology deals rose 52% during the period.

Rapid innovation, changes in the technology supply chain and the drive by many companies toward the cloud and other areas of digital transformation are spurring deal-making involving technology companies, Toole said.

The number of global deals rose 29% during the six months of 2021 compared with the same period in 2020, Refinitiv said.