U.S. M&A perks up in Q3 but lags 2022
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U.S. M&A activity picked up pace in the third quarter, but remained well below 2022 levels, new data shows.
Why it matters: M&A activity is a market barometer, and so far this year, all signs point to continued economic concerns, with some rays of light poking through.
Details: The value of U.S. M&A deals has fallen 23.7% to $875.6 billion year to date, compared to the same 2022 period, according to LSEG. The data runs from Jan. 1 to Sept. 27.
- Globally, M&A is down across all major regions, LSEG data show.
- In the U.S., the top sectors of activity were within energy, technology, and health care, according to LSEG.
- Health care was the only sector of the three that saw deal value increase from the year ago period. Pfizer's agreement to acquire cancer drugmaker Seagen for $43 billion played a major role in that jump.
Yes, but: As bad as the year-on-year drop looks, it's an improvement on a percentage basis from Q2, when U.S. M&A was down a whopping 40%. Several factors are driving improvement in certain sectors, according to Dave Chen, co-head of Global Technology Investment Banking at Morgan Stanley.
- In the tech sector, he says M&A is being driven less by private equity firms and more by companies that are more confident in their stock price and their ability to pay for an acquisition.
- "Strategics are back," Chen says.
- He added that sellers are also being more realistic about their value. Software valuations, as an example, are still well below where they were in 2016, he notes.
Zoom in: The tech sector had nearly the same number of deals compared to the year ago period (around 9,500), but the overall value was much lower.
- Global M&A across LSEG's high technology category (which includes software, semiconductors, IT, and a list of other sub-sectors) fell 55% to $286 billion year to date.
- Still, a few areas are increasingly attracting the interest of investors and dealmakers. Generative AI and defense tech are two examples, according to Chen.
- "The defense tech area is super interesting right now. There are VCs forming to only invest in U.S. private companies that will only sell to the U.S. government. Historically speaking, that's pretty much unheard of," he said.
- Chen added that his bank has worked on eight of the dozen, $1 billion plus public software transactions so far this year. That said, he recognizes that looming uncertainty that hangs over the macro-economic climate.
