What the Russia-Ukraine Conflict Means for Global M&A
What is and should be the real impact and outlook for Middle Market M&A?
TOPLINE: At least 100 major worldwide corporations have postponed or pulled financing deals totaling more than $45 billion by Bloomberg’s count in the wake of Russia’s attack on Ukraine, which has rattled markets and dented investor appetite amid increased volatility and uncertainty.
But what is the real impact and outlook for Middle Market M&A?
KEY FACTS: that includes initial public offerings, bonds or loans and mergers and acquisitions.
Since late February, around the time Russia invaded Ukraine, around 50 companies have halted plans to go public, 30 of which were planning to list in the United States, including biotechnology company Bioxytran, media and financial services company Crown Equity Holdings and pharmaceutical company Sagimet Biosciences, Bloomberg reported.
In the M&A market, around 10 deals worth more than $5 billion have been held back since the Russian aggression, and as a result, the global M&A plunged 15% to $1.02 trillion between January and March compared to a year ago, Bloomberg reported, with Europe the most affected.
KEY BACKGROUND: Geopolitical uncertainty caused by Russia’s invasion of Ukraine and rising interest rates worldwide to contain worsening inflation have spooked investors, drawing a contrast to 2021 when IPOs raised a record $594 billion. The Cboe Volatility Index, viewed as a gauge of fear in the markets, rose above 30 when Russia invaded Ukraine and has averaged above 26 this year. Financial institutions, including Goldman Sachs and JPMorgan, have distanced themselves from the Russian market since the war
– Companies Dealmaking down 29% to $1.01 trillion
– Asia Pacific M&A hit the hardest with 33% drop
– North America M&A down 28%, Europe down 25%
– Private equity buyouts still at healthy levels
“The rising cost of energy, the dislocation of supply chains and higher inflation are key factors impacting both corporate and private equity clients today,” said JPMorgan Chase & Co (JPM.N).
“In this moment of dislocation, the volatility has greatly affected the use of stock,” said Cary Kochman, co-head of global M&A at Citigroup (C.N). “This is not a frenzied market any longer.”
But for all its challenges the overall environment for buyouts remains robust.
“You’re going to see private equity M&A continue to make up a larger portion of the M&A activity overall as the dry powder to deploy remains at record levels,”
Direct lenders stepped in aggressively during the first quarter to help finance large leverage buyouts as some traditional lenders shied away from assuming higher leverage risk due to the uncertain macroeconomic environment.
