H1’24 Highlights
M&A volume increases while number of deals falls to four-year low
The number of announced M&A deals declined by 25% to 23,239 globally in H1’24, compared to 30,861 in H1’23. However, the total deal value rose by 18% to USD1.5 trillion in H1’24, making it the strongest first half for deal-making since 2022. Despite this, Q2’24 saw a 12% decrease in deal value compared to Q1’24.
Regionally, M&A activities in both the US and Europe increased by 39% YoY, with the US accounting for 53% of the total deal volume, the highest percentage since H1’19. Conversely, H1’24 was the slowest first half for M&A in APAC since 2013, with a 24% YoY decline in overall activities. High inflation, interest rates, and geopolitical tensions continued to impact global M&A activities. The technology, energy, and power sectors led the way, each accounting for 17% of the total deal value largely driven by mega deals.
Debt capital markets remained solid
In H1’24, global debt capital market (DCM) activity accounted for USD5.4 trillion, up 11% compared to H1’23. This marked the strongest opening period for DCM since 2021. New DCM offerings rose by 6% YoY to an all-time high of just over 16,000. Investment-grade corporate debt issuances increased by 13% YoY, while high-yield activity surged by 83%, marking a three-year high. Green bond issuances stood at USD268 billion, consistent with the previous year’s level despite a 14% drop in Q2’24 vs Q1’24. In sectoral activity, the healthcare, retail, and consumer staples sectors registered double-digit percentage increases compared to H1’23. However, the technology sector experienced the most significant decline during this period down 7%.
ECM activity reached three-year high
Global equity capital market (ECM) activity accounted for USD310 billion in H1’24, up 10% YoY, marking the strongest first half for global ECM in three years. The US accounted for 35% of the total issuances, with proceeds up by 41% compared with H1’23. ECM activity in China declined by 66% YoY, the lowest percentage of global ECM during the first half since 2009. Global IPOs, excluding SPACs, totaled USD49 billion, down by 18% YoY, marking the slowest opening period for global IPOs since 2016. Despite this, US listings more than doubled during the same period, reaching a three-year high. Convertible offerings, which totaled USD57 billion, increased by 19% YoY and accounted for 18% of overall ECM deals. The technology, financial, and industrial sectors were the most active, together accounting for 63% of the total issuance of convertible offerings.
Top five M&A deals (1H’24)
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Date of announcement
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Acquirer’s Name
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Acquirer’s Location
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Target
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Target’s Location
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Value (USD billion)
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Target’s Industry
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Deal types
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|---|---|---|---|---|---|---|---|
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Feb 19, 2024
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Capital One Financial
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US
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Discover Financial Services
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US
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35.3
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Financials
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Stock
|
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Jan 16, 2024
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Synopsys
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US
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Ansys
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US
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32.4
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Tech
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Cash & stock
|
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Feb 12, 2024
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Diamondback Energy
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US
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Endeavor Energy Resources
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US
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25.8
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O&G
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Cash & stock
|
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May 29, 2024
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ConocoPhillips
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US
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Marathon Oil
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US
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22.5
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O&G
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Stock
|
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Mar 28, 2024
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Home Depot
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US
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SRS Distribution
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US
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18.3
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Retail
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Cash
|
Investment banks reported healthier pipeline for deals but cited headwinds and reasons for caution
Investment banking revenues for major banks revived in Q2’24 due to improving global market conditions, leading to a surge in equity and debt underwriting businesses. The resurgence of mega deals, improved boardroom confidence from strong earnings, potential interest rate cuts this year, and a buoyant market were the main factors driving the rebound. Market performance is expected to improve in 2024 due to pent-up demand for M&A and a strong pipeline, provided the macro and geo political environment remains stable.
Note: Revenue for Deutsche and Barclays were converted into USD using the exchange rate as of June 30, 2024
Revenue for Deutsche Bank reflects revenue from Origination & Advisory services
Bulge bracket investment banks – H1’24 highlights
JP Morgan’s investment banking fees increased by 50% YoY in Q2’24, driven by higher fees across products. Advisory fees rose by 45%, primarily due to the closing of several large deals and a weak prior-year quarter. Underwriting fees also saw significant growth, with equity fees up 56% and debt fees up 51% YoY in Q2’24, benefiting from favorable market conditions. The company is pleased with both the YoY and sequential improvements in the quarter and remains cautiously optimistic about its pipeline, despite ongoing headwinds. Additionally, pull-forward refinancing activity significantly contributed to its robust performance in H1’24.
Goldman Sachs’ investment banking fees increased by 21% YoY in Q2’24. The upside reflects significantly higher net revenue in debt underwriting, primarily driven by leveraged finance activity, and higher net revenue in equity underwriting, from convertible and initial public offerings. The firm’s backlog increased on a QoQ basis in Q2’24, driven by both advisory and debt underwriting. Goldman Sachs expects continued growth momentum as it deepens its lending penetration with clients and expands its advisory footprint.
In Q2’24, Morgan Stanley’s investment banking revenue increased by 51% YoY, which included a 70% YoY rise in fixed-income underwriting. Advisory revenues grew by 30% YoY, reflecting a surge in completed M&A activity. The pre-announced M&A backlog continues to build, indicating diversification across sectors. Equity underwriting revenues rose by 56% YoY, driven by private placements and higher revenues from IPOs and convertible offerings. Fixed income underwriting revenues surged from the previous year, primarily due to higher non-investment grade issuances. The investment banking environment continues to improve, led by the US, with healthy advisory and underwriting pipelines across regions and sectors.
Bank of America’s investment banking fees increased by 29% YoY in Q2’24, primarily driven by higher DCM fees, especially in leveraged finance and investment-grade sectors. Advisory revenue remained flat, while debt underwriting revenue rose by 47% YoY in Q2’24. Equity revenue also increased by 24% during the same period. The bank’s results reflect the benefits of investments made in its middle market IB and dual coverage teams.
Citi’s investment banking revenue increased by 60% YoY in Q2’24, driven by its strong performance in DCMs, which benefited from robust issuance activity, primarily in investment-grade securities. ECMs also saw an uptick, reflecting increased IPO activity and continued convertible issuance. Additionally, advisory revenues rose as transactions announced in 2023 came to fruition.
Deutsche Bank’s revenue from origination and advisory (O&A) business increased by 76% YoY in H1’24, with strength across all segments as it made share gains in a growing global fee pool. Origination & Advisory revenues are expected to be significantly higher in 2024 compared to 2023, driven by a continuation of the industry recovery seen in H1’24, along with the incremental impact of investments across the platform. Also, within debt origination, leveraged debt capital markets expect to build on their strong start to the year, as market conditions remain favorable for issuances, with the increase seen in M&A activity expected to further drive demand for financing.
Barclays’ investment banking (IB) fee income rose by 21% YoY in H1’24, driven by increased fees in equity and debt capital markets. Equity capital markets fees surged by 59% YoY in H1’24, reflecting strong performance in Q2’24, including fees from a large UK rights issue. Debt capital markets fees grew by 34% in H1’24 due to heightened activity in leveraged finance and investment-grade issuance. However, advisory fee income decreased by 16% during the same period. The IB division delivered a return on tangible equity (RoTE) of 10.8%, benefiting from diversified income streams, including higher equities, underwriting, and IB fee income, despite a decline in fixed income, currencies, and commodities (FICC) income due to lower client activity.
UBS’s advisory revenue rose by 17% YoY in H1’24, mainly due to higher M&A transaction revenue while capital markets revenue soared by 181% YoY in H1’24, largely due to USD540 million from the consolidation of Credit Suisse revenue and other purchase price allocation (PPA) effects. Excluding these effects, underlying capital markets revenue increased by 86%, with gains across all products. Revenues from debt capital markets and equity capital markets increased by 44% and 42% YoY in H1’24, respectively. As Q3’24 begins, the bank is experiencing positive investor sentiment and continued momentum in client and transactional activity.
Advisory firms were resilient despite challenging market conditions
Similar to investment banks, major advisory firms saw a revival in revenue in Q2’24. Most firms acknowledged the increased risks associated with the current geopolitical, economic, inflationary, and market conditions. However, they noted improvements in the availability of debt capital and are optimistic about deal-making for the remainder of 2024.
Note: Houlihan Lokey’s fiscal year ends in March (represents numbers for three months ending June 24).
M&A advisory firms – Performance highlights
Evercore’s advisory fees increased by 19% YoY in H1’24, reflecting higher revenue from large transactions and a greater number of advisory fees earned. Underwriting fees rose by 42% YoY for the same period, due to an increase in the number of transactions the firm participated in. The firm has advised on some of the largest announced transactions to date, including GE’s spinoff of GE Vernova for nearly USD36 billion, Synopsys’ approximately USD35 billion acquisition, and ConocoPhillips’ USD22.5 billion acquisition of Marathon Oil. The backlog in the region continues to build, and the firm expects a 19% 38% 31% reserved. evalueserve.com Sources: Refinitiv, press releases www.evalueserve.com Sensitivity: Public stronger H2’24. Despite industry-wide headwinds in the fundraising environment, the firm’s business performed well.
Lazard’s financial advisory revenue increased by 38% YoY in H1’24. Since Q2’24, the firm has been involved in significant and complex M&A transactions globally. Its leading restructuring and liability management practices have managed a wide range of complex restructuring and debt advisory assignments. Lazard’s financial advisory revenue in H1’24 reflects the successful execution of its long-term growth strategy.
Moelis’ revenue increased by 31% YoY in H1’24. The upside was driven by a higher number of transaction completions across all key products compared with the prior year. During Q2’24, it onboarded three managing directors in technology, industrials, and capital structure advisory. Its Q2’24 results reflect improved performance across major product areas and a growing business momentum.
PWP’s reported revenues increased by 26% YoY in H1’24, mainly attributed to increased M&A and financing and capital solutions activity, driven by larger transactions and related fee events across the business. Recruiting remains a strategic priority to scale the firm as it is executing its growth strategy and enhancing franchise globally with the addition of exceptional talent and world-class clients.
The road ahead
Revival in demand for advisory services
The momentum in the underwriting and advisory businesses is expected to continue in 2024, albeit at a slow and varying pace. This momentum will be driven by strong market sentiments, low volatility, and more attractive valuations. Persistently high debt costs are expected to further drive demand for IPOs and other equity issuances. Much of the recovery in 2024 will be triggered by a combination of refinancing, sustainability-led initiatives, and event-driven acquisitions. Therefore, revenue from issuances and advisory is expected to outpace that of the trading division. Stable monetary policies and low market volatility in many regions should compress trading revenue growth. Nevertheless, investment banking revenues may not reach the highs of 2021 in the near term.
Rise of activist campaigns
After a brief decline during the pandemic, shareholder activity rebounded to pre-pandemic levels in 2022 and continued into 2023, despite macroeconomic headwinds and a challenging execution environment. While small and mid-cap companies still make up the majority of activist targets, large-cap companies now account for 30–35% of campaigns, up from 20% two years ago, with Europe leading this shift. Operational improvements and calls for management changes have taken center stage, deviating from traditional activist campaigns. As we move forward in 2024, the current high levels of activities, especially targeting large-cap corporations, are expected to persist.
Resilience of the traditional economy sectors
Following the post-COVID-19 growth cycle, there has been a significant shift towards capital market activity in traditional economy sectors such as industrials, materials, power, and natural resources. Natural resource companies, in particular, were active across verticals, representing a quarter of total volumes, including the two largest transactions of FY’23. More broadly, the focus on the future of energy and natural resources has led to the reevaluation and refocusing of portfolios through divestitures and structured separations, as well as investments through capex and M&A in transition and technology. Over the next decade, growth is expected to be driven by renewable energy investments in traditional economy sectors.
Financial sponsors M&A to gain prominence
In FY’23, sponsoring M&A slowed down due to rising borrowing costs, macroeconomic and operational risks, and the growth of the secondary market, which created a significant gap for improved sentiment next year. As global M&A volumes stabilize and the institutional leveraged loan market becomes more supportive of M&A financing, the environment is set for increased sponsor activity. Financial sponsors will likely remain active as both buyers and sellers, given record levels of dry powder and the need to return capital to investors, which was at its lowest in the last four years.
Trends for corporate separation to continue
Corporate separation activity, in which companies spin off parts to streamline their businesses, remained strong in 2023 despite capital market volatility and is expected to continue in 2024. Currently, two-thirds of S&P 500 companies have three or more large segments, each generating over USD500 million in revenue. These segments are partly the result of a decade of mergers and portfolio diversification driven by a ‘bigger is better’ philosophy following the global financial crisis. This trend has made companies more complex, creating ample opportunities for spin-offs and carve-outs. The high levels of spin-off activities in recent years and positive investor reactions to them are likely to drive future activity in this space.
Cross-border M&A driven by regional economic issues
Given Europe’s proximity to the geopolitical conflict areas of Russia-Ukraine and Israel-Hamas, economies in the region have underperformed compared with the US and emerging markets. This has driven European companies to increase their exposure to alternative markets. Additionally, Japanese companies may seek cross-border mergers and acquisitions to invest capital and increase yields outside of Japan as it continues to emerge from deflation.
GenAI deals to gain pace
Following some periodic adjustments in the investment pace, the overall trajectory for AI investment remained robust in Q1’24. During this period, tech giants spent unprecedented sums to invest in AI startups, aiming to stay ahead in the GenAI boom. Additionally, the public sector is becoming increasingly involved in fostering and financing the future of AI. With the rise of GenAI, more companies are prioritizing deals that enhance their tech stack and position them at the forefront of the AI revolution.
Potential interest rate cuts to boost M&A activity
Recent interest rate cuts announced by Switzerland, Sweden, Canada, and the European Central Bank may signal that further reductions are on the way. These long-awaited cuts will be welcomed by dealmakers seeking to fund acquisitions through debt. The current high interest rates squeeze returns, thereby placing greater emphasis on a potential deal’s value creation.
