U.S. M&A sees uptick as dealmakers eye energy bids, dual-track sales

Dealmakers see a rosier M&A outlook for Q4 and beyond, as corporate buyers prepare to pounce, and as piles of cash burn holes in private equity pockets.

Driving the news: Fueling these hopes are a surprising number of big-ticket summer deals, improved business confidence and easier bank lending.

What's happening: M&A markets were dead quiet in the first half of the year, but deal activity came to life in the normally quiet summer months, across multiple sectors. Significant deals announced since July 1 include:

• Pipeline operator Energy Transfer agreeing to acquire rival Crestwood for $7.1 billion.
• Private equity firm GTCR agreeing to buy a 55% stake in fintech Worldpay, which included a $1.25 billion check for Worldpay to pursue more deals.
• And last month, fashion conglomerate Tapestry struck a deal to buy competitor Capri Holdings last month for $8.5 billion.

State of play: These stirrings have bankers getting back to work.

• Brian Haufrect, co-head of Goldman Sachs' Americas M&A, says his team has been able to "relaunch processes and dialogue that had previously been put on hold."
• The IPO market rebound is also helping to kickstart dual track discussions from sellers, says Dan Grabos, co-head of Barclays' Americas M&A team.
• "In virtually every private equity IPO exit situation that we've talked about with clients, they want to evaluate a dual track M&A and IPO," Grabos says.
• Meanwhile, Haufrect says he expects to see corporate spin-offs increase as strategics continue to assess their portfolios.

By the numbers: Through Aug. 31, U.S. M&A was down 26.7% to $981 billion, according to LSEG, the lowest year-t0-date value in a decade, excluding 2020. The number of deals notched up through that date totaled 12,743, an 8.4% drop.

Yes, but: The trend line is ticking up. U.S. M&A value was down 40% as of June 30.

What they're saying: Haufrect and Grabos both zeroed-in on one sector to watch: energy transition.

• "A lot of clients are evaluating the appropriate pace of transition from fossil fuels to a lower carbon business model given the practicalities in the market, and many are looking to investments and M&A to facilitate that transition," Grabos says.
• M&A interest in the energy sector is tracking close to venture capital dollars, as funds are expected to invest more into carbon and emissions-tech startups this year than in 2022.
• With significant capital now invested in the sector, Haufrect says he expects M&A to play a larger role.

Yes, but: A stricter antitrust regime and new merger guidelines are casting a shadow over the deals landscape.

• Both Haufrect and Grabos say potential antitrust concerns loom when vetting prospective buyers.
• "People are spending more time thinking about regulatory risks and thinking about it up front," Haufrect says.

The bottom line: Dealmakers are more than ready for an M&A boom — but wishing doesn't make it so.