(Bloomberg) -- The slowdown in dealmaking that’s crimping fees for the world’s biggest banks is here to stay, according to Citigroup Inc.’s top mergers and acquisitions adviser in Europe.
“The world has changed very quickly,” Alison Harding-Jones, head of M&A in Europe, the Middle East and Africa at Citigroup, said in an interview. “I suspect M&A gets harder and not easier in the short term.”
Deals worth about $1 trillion have been announced across EMEA in 2022, according to data compiled by Bloomberg. That’s down roughly a third year-on-year as soaring inflation, a global energy crisis and threat of recessions keep buyers on the sidelines.
This is a marked reversal on 2021, when M&A records were regularly being smashed thanks in large part to super-acquisitive private equity firms. Since then, rising interest rates and tightening financing markets have made it harder for buyout firms to pursue deals.
While it may still be possible to pull off smaller take-privates, Harding-Jones said it’s not clear whether sellers will be willing to deal at distressed levels. “It feels like a paradigm shift,” she said. “There will be a point where activity will pick up but we need more clarity on all fronts.”
Citigroup has advised on some of the biggest transactions announced in Europe this year, including Philip Morris International Inc.’s proposed $16 billion takeover of smokeless tobacco company Swedish Match AB, and Schneider Electric SE’s £9.5 billion buyout of UK industrial software company Aveva Group Plc.
As well as being less sanguine than some peers with her broader dealmaking outlook, Harding-Jones is also less convinced that recent volatility in the British pound will specifically spur American bargain hunters to shop in the UK.
“Is this a once in a lifetime opportunity to for US companies to snap up UK assets? I don’t think it is that easy,” she said. “There is still a lot of uncertainty.”
Activists Abate
Meanwhile activist investors, which were another driver of deals during the 2021 boom, will want more clarity on the UK market before deciding to take up new positions and push for change at listed companies, Kiran Moorthy, Citigroup’s head of European shareholder advisory, said in the same interview.
“Until the dust settles as it relates to the sterling and rates, activists are likely to remain focused on managing their existing positions,” Moorthy said.
Moorthy said the challenge for boardroom agitators is differentiating between a company’s intrinsic and market worth, so as not to risk falling into value traps. Those that had been campaigning for M&A activity at their target companies may also find plans stifled in the short term, he said.
“If you are an activist pushing companies to break up businesses or divisions or push for smaller firms to sell themselves, the key question is who are the buyers?,” he said.
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Top Citi M&A Banker Sees No Fast Return to Boom Time Dealmaking - BNN Bloomberg
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