The merger and acquisition market has slowed dramatically in recent months as market volatility and persistently high inflation has prompted dealmakers to take a more conservative approach to M&A.
M&A Market Drying Up? The total value of global M&A deals dropped 34% in the first nine months of 2022 to $2.81 trillion, according to Refinitiv. That year-over-year decline marks the largest decrease since the 42% drop in 2009 during the global financial crisis.
A slumping economy and tightening financial conditions could drive more companies to explore spinoffs or asset divestitures. U.S. divestitures dropped 21% year-over-year to 340 in the third quarter, according to Dealogic.
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Apollo Global Management (NYSE:APO) is one company on the acquiring end of a recent divestiture. Last week, Apollo joined PIMCO in acquiring a significant portion of the Securitized Products Group business of Credit Suisse Group AG (NYSE:CS).
The deal will provide Credit Suisse with much-needed liquidity, and Apollo CEO Marc Rowan said Wednesday that it will significantly increase the firm's debt origination capabilities.
"This is a product set that is primarily investment grade that fits extraordinarily well into our requirements for both our retirement services business and the third-party business we are building," Rowan said on Apollo's earnings call.
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Banks On The Sidelines: Banks may be getting a bit gun-shy on financing big deals in the fourth quarter and beyond. U.S. investment-grade bond issuance dropped 17% in the third quarter to $272.6 billion.
Banks will reportedly endure hundreds of millions of dollars in losses on recent financing deals associated with the $16.5-billion acquisition of Citrix Systems by Vista Equity Partners and Evergreen Coast Capital and the $44-billion buyout of Twitter by Tesla Inc (NASDAQ:TSLA) CEO Elon Musk.
Blackstone's $18B Deal: Despite the difficult environment, Apollo isn't the only buyer taking advantage of depressed valuations.
On Monday, Blackstone Inc (NYSE:BX) announced an $18-billion deal to acquire a majority stake in the climate-technologies business of Emerson Electric Co (NYSE:EMR).
Blackstone said it was forced to place the debt supporting the deal itself rather than rely on banks to provide the debt financing. Blackstone was previously forced to assemble its own assortment of direct lenders to complete deals during the financial crisis in 2008 and 2009.
Benzinga's Take: High interest rates, a tight debt market and a volatile and unpredictable credit landscape create a very unattractive environment for M&A activity.
The similarities between the current M&A market and conditions during the 2008 and 2009 crisis are also somewhat concerning.
