Elon Musk’s Twitter Fight Points to M&A Experts’ Big Fear: Collapsing Deals

tech.hindustantimes.com:

A slowdown in mergers and acquisitions is coming this quarter as turmoil in the stock market pressures pending takeovers and raises the risks of more deals collapsing, like Elon Musk’s purchase of Twitter Inc.

While the Musk-Twitter fight has the market transfixed, a bigger issue for the M&A industry is the generally challenging backdrop for deals. With volatility continuing and interest rates rising, a slowdown is expected in the third quarter with the possibility of more transactions being pulled, a Bloomberg News survey of 16 M&A trading desks, fund managers and analysts, found. They named Seagen Inc. as the most likely takeover candidate in the next three months.

“If buyers are unable to accurately forecast companies’ earnings or determine valuations, it’s going to be difficult for them to commit capital,” said Tyler Silver, a partner at New York-based investment firm Apex Capital.

Deal flow is already hurting. During the second quarter, the total value of pending and completed transactions involving US targets reached roughly $347 billion, down 18% from the first quarter and 36% from the same period last year, according to data compiled by Bloomberg.

Distressed Spreads

Average annualized US merger arbitrage spreads spiked above 15% in May and June from roughly 10% at the beginning of the year, according to Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group. That’s a similar to what the market saw in early 2020, when the pandemic derailed confidence in deals being completed, he said. Rising interest rates and lower downside assumptions caused by the stock market slump also drove spreads wider across the board.

Among the deals considered most at risk were Nielsen Holdings Plc, Citrix