Last week we explained how the global IPO market was unraveling. Then this morning, we outlined how the devastating impact of WeWork's catastrophic failed IPO had damaged capital market sentiment. It's likely that 2019 will go down in history as the worst year for IPOs, not just in the US, but also globally.
As the global IPO bubble implodes, there's a new report from Reuters that warns how global mergers and acquisitions (M&A) are also plunging, a sign that economic uncertainty surrounding the trade war has frightened capital markets.
As corporate sentiment deteriorates around the world, many believe a global trade recession could arrive as early as 2020, which has sparked a massive push into money markets, precious metals, and government bonds in the last six to eight months.
With the expectation of economic doom ahead, management teams of multinationals are quicky pulling M&A deals. This was evident in 3Q19 figures, where global M&A plunged 16% YoY, one of the lowest quarterly volume prints since 2016.
"M&A volumes have dissipated because there are concerns that risks may be rising in several spots, in markets and elsewhere," said Michael Carr, global co-head of M&A at Goldman Sachs Group Inc.
A lot of the uncertainty was seen in the US, M&A volume collapsed by 40% YoY in 3Q19, to $246 billion, the lowest quarterly level since 2014.
M&A volume in Asia was weakening as well, down 20% YoY to $160 billion, the lowest level since 2017.
Robin Rankin, global co-head of M&A at Credit Suisse Group AG, told Reuters that valuation concerns of companies have slowed down M&A transactions.
"Companies looking at deals have become more risk-averse, and this is likely to bring M&A volumes down for the year. But we expect M&A activity to be strong going into next year," said Rankin.
Deal making in Europe was an exception. M&A volume across the Eurozone jumped 45% YoY in 3Q19.
"In Europe we have seen a real mix of different kind of deals which were spread across various sectors and geographies," said Eamon Brabazon, co-head of EMEA M&A at Bank of America Corp .
"This is a sign of a healthy market because we're not relying only on a particular strand. There's no obvious reason to believe the M&A market will turn south in the foreseeable future," he added.
One of the largest M&A deals that went bust in the quarter was Marlboro maker Philip Morris International Inc's bid to merge with Altria Group Inc, would have created a market value of $200 billion. The deal was scrapped when government officials opened investigations into Altria's Juul e-cigarette, for the possibility of triggering a dozen or so vaping-related deaths.
Waning capital market sentiment because of trade wars and recession threats could lead to more management teams pulling deals. It certainly seems that the windows for IPOs and M&As are closing, as economic turmoil could flare up in 2020.
A slowdown in M&A deals is an ominous sign that Wall Street banks will see declining revenues in the quarters ahead