Will the shocks of war end the global deals boom?
London dealmaking showed the first direct strains of war this week as precision manufacturer Spectris abandoned its takeover bid for microscope-maker Oxford Instruments, citing volatility sparked by Russia’s invasion of Ukraine.
Bosses at Spectris said “the world has changed” since it began talks to takeover the firm, and changed it certainly has.
Equity markets have been sent into a spin as the West clamps down with sanctions and firms have scrambled to dump their Russian assets and sever ties with the country.
While dealmaking has enjoyed a post-pandemic boom, reaching $5.9tn in cumulative value last year, the ripples of war on top of inflationary fears could now be bringing that to a close.
Deal intelligence firm Refinitiv found last week that dealmakers were already beginning to get the jitters in February as Putin’s rhetoric around war intensified following a turbulent month for markets in January.
Deals totalling $296.7bn were announced globally last month, down 33 per cent on January and 35 per cent down on February last year.
Figures in Europe similarly bear out the trend with cross-border M&A slumping to $68.2bn, down 26 per cent compared to February 2021 and the lowest monthly total in ten months.
M&A advisory firm FinnCap Cavendish say that the conflict may be the final straw for the post-pandemic dealmaking boom.
“Even before the invasion, the deals boom had started to show signs of fatigue in Europe although most bankers did expect 2022 to be pretty busy,” says John Farrugia, managing partner at FinnCap.
“Whilst M&A deals will continue to take place in the mid-market, getting deals over the line will be a little tougher and harder to get done.”
The conflict in Ukraine was likely to spell a marked slowdown for firms in manufacturing and industrials, Farrugia says, as the sectors feel the pressure of a clampdown on Russian oil imports.
At the end of January, 86 per cent of FTSE 250 bosses were planning for some form of M&A this year, according to investment bank and advisory firm Numis, but the firm conceded this optimism was now likely to have been dampened after global markets were rocked by the invasion.
“It is likely that some bidders, vendors and financing providers will now take a “wait and see” approach as the situation continues to evolve,” said Stuart Ord, Head of M&A at Numis.
“Confidence and certainty are paramount in M&A transactions and so the macroeconomic pressures and geopolitical developments that continue to evolve on a daily basis will inevitably weigh on the near term dealmaking outlook.”
Ord cautioned writing the year off completely, however, pointing to a buoyant M&A pipeline that will be keeping bankers busy for some time to come.