Wall Street cheers as billion-dollar deals make a comeback

Robert Alexander/Getty Images; Jenny Chang-Rodriguez/BI

Mars, Verizon, and now possibly Qualcomm have been on the hunt for big acquisition targets.Deals valued at $1 billion-plus worldwide are up 22% from a year ago, LSEG data shows.Wall Street executives have been bullish about the burgeoning pipeline for deals.

For Wall Street deal makers, the billion-dollar bangers are back.

In just the last few months, we’ve seen candy king Mars gobbling up Kellanova, the maker of Cheez-It and Pringles, for nearly $36 billion including debt, and media-giant Paramount Global, owner of CBS and Nickelodeon, finally clinching a multibillion-dollar merger deal. Telecoms giant Verizon Communications, meanwhile, is buying Frontier Communications for $20 billion, including debt.

And even bigger megadeals could be on the horizon: Qualcomm is reported to be stalking chip rival Intel, which has a market value of nearly $104 billion.

So far this year, there have been 425 mergers worldwide valued at more than $1 billion, up 24% from the 2023 period, according to preliminary data compiled by LSEG. And there have been 25 “whales” – deals valued at greater than $10 billion – so far this year, up 39% from the previous period.

The billion-dollar bangers are emerging even as the overall outlook is not that encouraging. The closely fought US election creates uncertainty over regulatory and economic policies for corporate chieftains. War in Ukraine and the conflict in the Middle East poses additional risks.

While the surge in megadeals has helped lift the dollar value of deals worldwide so far this year by 17% , to $2.3 trillion, the number of mergers announced is down 21% from the previous year, according to the LSEG data.

So what has revived what Wall Street refers to as the “animal spirits,” at least when it comes to bigger targets?

Certainly, lower interest rates help. Lower rates reduce the cost of borrowing.

Wall Street executives have also pointed to pent-up demand among companies as the pandemic and its aftermath, with higher inflation and supply-chain disruptions, delayed plans to grow through mergers.

David Solomon, the chief executive of Goldman Sachs, the leading global M&A advisor, referred to a “backlog” of transactions during the firm’s second-quarter earning call this summer.

“From what we’re seeing, we are in the early innings of the capital markets and M&A recovery,” Solomon said. Merger activity, he noted, was still significantly below 10-year averages. “I think we’ve got another 20% to go to get to 10-year averages, ” he said, according to a transcript by AlphaSense.

Other Wall Street bank chieftains, like Ted Pick of Morgan Stanley and Peter Orszag of Lazard, have been bullish about the M&A pipeline.

A recent survey of more than 1,300 CEOs of big companies worldwide by KPMG supports the idea that corporations are growing confident about doing deals. Some 49% of US CEOs told the survey that they were likely to undertake acquisitions over the next three years.

Shareholder activists are also spurring deals as companies look to simplify and refocus, Bloomberg reports. Its data shows at least $250 billion of spinoffs and asset sales this year.

“Markets and activists are keeping companies honest,” Hernan Cristerna, JPMorgan’s global chairman of mergers and acquisitions, told Bloomberg. “Executives want to pre-empt demands by exiting non-core assets that may fundamentally impair or distract from the performance of their core businesses.”