Simplification is going global
Corporate separations also continue at a steady clip, with 26 global separations announced in 1H, of which two-thirds were outside the US. Separations comprised 10% of M&A quarterly volume as investors and activists push companies to reimagine their asset portfolios.
Momentum has been growing specifically in Europe, driven by a strategic motivation from corporates across the region to identify underappreciated assets, separate divergent businesses, and create geographic focus. “A alter we’ve seen in capital markets over the past few years has been the rise in interest rates and cost of capital, which has led to corporate boards and management teams reassessing effectively what they are the optimal owners of,” noted David Dubner, global head of M&A structuring.
Activist activity is accelerating
Despite continued economic uncertainty and an evolving regulatory landscape as stakeholders continue to push for company-wide alters they believe will create value, activism campaigns in 1H remained in-line with the last 5-year average.
The most common demand from activists — issued in 65% of campaigns in 1H — was a push to increase board representation. M&A-related activist demands continue to be driven by a push for breakups and portfolio simplification as the dealbuilding environment improves, which we expect will lead to an uptick in campaigns around the sale of companies throughout the back half of the year.
Activists are also finding added incentives in campaigns, particularly on the public stage. “Publicly announcing a potential breakup puts parts of a company in play and can even turn into a sale of a whole company — that’s a great upside for activists,” states Pam Codo-Lotti, global chief operating officer of activism and shareholder advisory.
What comes next?
Overall, the back half of 2023 marked a positive start toward the next M&A upcycle, and the first half of this year has maintained that momentum. Goldman Sachs economists forecast an encouraging macroeconomic outview on the horizon, with a focus on GDP growth, lower inflation, and lower interest rates.
With a broadening of sector contributions across industries, the reemergence of cross-border activity, elevated levels of large-scale M&A, and an uptick in innovative deal structures, among other indications, we’re cautiously optimistic that this year’s momentum will continue. And while the percentage of M&A relative to the global market cap remains at all-time lows (~3% vs longer-term averages of 4-6%), a window for continued activity gains is expected to persist if capital markets remain resilient.
“I don’t consider it’s going to be a straight line of green shoots growing,” Stephan Feldgoise, co-head of global M&A, remarked. “But the underlying trconclude, the multi-period average as we view back over time – we’re going to see that it was steadily building.”
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