The war on Ukraine by Russia is threatening to derail a deal boom that brought in a record $130 bn in fees for investment banks in 2021 and helped to raise profits at the largest European and American lenders. Senior bankers have said that the Ukraine conflict had led to a sudden pause in deal-making activity, which had the potential to turn into a longer-term slump if the impact of the crisis continues.
The head of M&A at a US bank who declined to go on record talking about the conflict, said: “The juxtaposition between where we were at the end of December – exhaustion having not stopped working for months on deal after deal after deal – to where we are weeks later is huge. I’ve never seen such an acute turn.”
There were already signs that the boom was slowing this year. M&A activity to March this year was down 27pc compared to the same period last year to $754.7 bn, according to data provider Dealogic. IPOs have slumped by 72pc globally and 84pc in Europe to just $3.2 bn, as volatile markets have made transactions difficult to price and underperforming listings last year hit investor appetite.
“Investor appetite is shot to pieces'', said the chief executive of one London investment bank focused on Europe. It was hard enough to get deals of the ground before the war, but the Ukraine-Russia situation has seen pretty much everyone pull back to wait and see how long the crisis lasts.”
In a sign of the growing concern over the impact of the conflict, electronics firm Spectris pulled out of its $2.4 bn planned acquisition of Oxford instruments on March 7. Chief Executive Andrew Heath said, the “world has changed” since the war and it brought “a high degree of uncertainty to the economic outlook around the world.”
Head of M&A at Numis, Stuart Ord, said, many companies were in a “wait and see” mode. “Confidence and certainty are paramount in M&A transactions, and so the macroeconomic pressures and geopolitical and developments that continue to evolve on a daily basis will inevitably weigh on the near-term deal-making outlook.”
There are around $300 bn of outstanding M&A deals in Europe, according to Bloomberg. “We’re in the eye of the storm right now'', said one senior equity banker. “The change in mood is palpable. Appetite for deals has been hugely impacted, but there’s a big question mark about how long this pause will last.”
In the week after Russia’s invasion of Ukraine, equity markets in Emea raised $128m. according to Dealogic, down from $1.6 bn two weeks earlier. Meanwhile, the $9.4 bn of M&A deals announced in the region in the same week was down 38pc on the weekly average of 2022. Around $10 bn of equity and debt fundraising has been pulled over the past two weeks, according to Bloomberg data.
The investment banking units of both European and American firms have helped bolster profits throughout last year, with Barclays, JPMorgan, Citigroup and Bank of America among those revealing record revenues. Banks brought in a record $130 bn in 2021 as M&A and equity capital markets fees surged, which has led to a battle for top talent that has prompted banks to raise bonus payments by as much as 50pc.
So far in 2022, revenues have already dropped by 37pc to $15.2 bn compared to the same period in 2021, according to Dealogic. However, dealmakers remain bullish that deal activity could bounce back in the longer-term. Chief executive of a boutique in London said: “Private equity companies have a wall of cash, interest rates are low, and there are huge technological and ESG drivers that all remain in place to drive more M&A.” (The writer is our foreign correspondent based in the UK)