“The scarcity of opportunities matched against the wall of money means that folks are maybe being less discerning in terms of their views on quality,” said Colin Ryan, Goldman Sachs co-head of mergers and acquisitions in the Americas and global co-head of technology M&A.
In response, banks are being picker.
“We take the view that we’re only going to do de-SPAC transactions for companies that are companies that we would otherwise take public,” Ryan added.
The number of blank-check companies on the hunt for a target, as well as investors’ reception of initial public offerings from consumer-facing technology brands like Airbnb Inc. and DoorDash Inc., could be tempting some potential M&A targets to tap the public markets instead.
“I would say there is a degree where companies that would have normally pursued an outright sale are now looking at IPOs or SPACs,” said Madhu Namburi, global head of technology investment banking at JPMorgan Chase & Co.
But technology strategics remain very active in deals, Namburi added. “Despite where the valuations are, we find the interest level is actually pretty high, and because strategics’ own stock prices are attractive, it’s giving them lots of confidence overall,” he said.
Bidding Wars
One sign of a potentially overheated market is the return of unsolicited deals and bidding wars, which stacked up in the first quarter as acquirers fought over tech and industrial targets.
The battle for laser maker Coherent Inc. went to eight rounds while U.S. defense electronics maker Cubic Corp. accepted a sweetened offer Wednesday from investment firms after Singapore Technologies Engineering Ltd. showed up with a counterbid.
Insurer Chubb Ltd., meanwhile, made a public $23 billion offer for Hartford Financial Services Group Inc., which has so far rejected its advances.
Mayooran Elalingam, head of investment banking coverage and advisory for Asia-Pacific at Deutsche Bank AG, said that deals are being driven by competitive pressures and technology changes and not just companies wanting to optimize their balance sheet.
“CEOs are focused on owning the right portfolio assets for the long run,” Elalingam said.
Regulatory Concerns
Protectionist sentiment killed at least one $20 billion cross-border deal in the quarter. Canada’s Alimentation Couche-Tard Inc.’s friendly takeover bid for French grocery chain Carrefour SA was blocked by the French government.
As the first quarter drew to a close, dealmakers in the U.S., and in other regions are closely watching President Joe Biden’s appointments at the Justice Department and the Federal Trade Commission. The fear is any big changes to antitrust policy that could stymie megadeals.
“Especially for companies looking at large deals, there is concern about what kind of reception they will meet in Washington, once it becomes clear what the antitrust policy is going to be,” Barshay said.
Biden has said he would nominate law professor Lina Khan to the FTC, an antitrust expert who has warned about about the power of dominant technology companies.
Besides technology, health-care deals could also come under scrutiny. This week, the FTC sued to block Illumina Inc.’s $7.1 billion proposed acquisition of testing firm Grail.
At least for now, there’s no sign the activity will let up. “The next six months or so will be very busy,” Citi’s Harding-Jones said
—With assistance from Ruth David, Katie Roof and Crystal Tse.
This article was provided by Bloomberg News.