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Elon Musk has repeatedly threatened to walk away from his US$44-billion takeover of Twitter and Broadcom is preparing for lengthy antitrust investigations into its proposed US$69-billion acquisition of cloud software company VMware.Joe Skipper/Reuters

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A wave of megadeals carried global mergers and acquisitions (M&A) volumes to US$2-trillion in the first half of the year, even as inflation, interest rate rises and the Ukraine war have ravaged confidence and caused significant deals to fall through.

Twenty-five deals worth more than US$10-billion have been announced in the first half of 2022, up 12 per cent compared with the same period last year – although overall deal volume fell by a fifth, according to figures from Refinitiv.

Concern has also arisen that some of the biggest deals that have buoyed the market might fall through or take longer to close than anticipated.

Elon Musk has repeatedly threatened to walk away from his US$44-billion takeover of Twitter Inc. and Broadcom Inc. is preparing for lengthy antitrust investigations into its proposed US$69-billion acquisition of cloud software company VMware Inc.

SoftBank Group Corp.’s US$66-billion sale of U.K. chip business Arm to Nvidia Corp. collapsed in February because of regulators’ concerns and Walgreens Boots Alliance Inc. this week halted the sale of Boots UK Ltd.

Dealmakers in the U.S. are also preparing for a more hostile approach to M&A from officials installed by President Joe Biden in the Department of Justice and the Federal Trade Commission (FTC).

“The administration set out to cool things off in the M&A market and it is having some effect,” says Eric Swedenburg, co-head of M&A at Simpson Thacher & Bartlett LLP. “The FTC has said it will fight a lot of deals even if that means they will lose more often.”

Global M&A last year hit its highest level since records began, thanks in part to booming markets and widespread stimulus measures during the pandemic.

U.S. dealmaking is already down significantly from last year, with US$950-billion worth of deals agreed in the first half, a drop of 28 per cent from the same period in 2021.

The blank-cheque boom that fuelled transaction volumes last year has largely died down and dealmakers have become more pessimistic about the economic outlook.

Corporate leaders “are going to be looking pretty closely at their balance sheets again to make sure they have rainy-day plans in place,” Mr. Swedenburg says. “For a lot of companies right now, that’s more top-of-mind than inorganic growth.”

Turmoil in the global economy has caused a rise in the value of deals being called off altogether, which stands at the highest level since before the pandemic at US$286.2-billion.

“We’re in a transition phase in which sellers have high expectations of value, but buyers have repriced to lower multiples,” says David Higgins, a partner at Kirkland & Ellis LLP. “That, together with issues around the quantum and pricing of debt available, has led to some processes being withdrawn or postponed.”

The megadeals have helped shelter investment banks’ M&A businesses from the significant drops in fee income that they have suffered elsewhere. Fees from advising on deals have fallen 7 per cent this year, compared with declines of 72 per cent in banks’ equity businesses and 26 per cent in bonds.

As corporate M&A has faltered, private equity groups have stolen their largest-ever share of overall dealmaking, the figures show. Buyout groups’ deals accounted for 26 per cent of total M&A so far this year, the highest figure since records began in 1980.

The industry’s deals include a €54-billion takeover bid by Blackstone Inc. and the billionaire family behind luxury fashion brand Benetton for Italian infrastructure group Atlantia SpA in April, the largest-ever take-private deal for a European listed company.

In the U.S., activist fund Elliott Management Corp. led the take-privates of media ratings group Nielsen Holdings Inc. for US$16-billion and software company Citrix Systems for US$16.5-billion.

Buyout firms are turning more to private lenders for financing, but these groups are now warning that a slowing debt market will curtail activity.

“Demand for direct lending capital will meaningfully exceed the available supply,” says Marc Lipschultz, co-founder of Blue Owl Capital Inc., who noted that loans are sitting on lenders’ books longer, limiting their capacity to finance new deals.

“The capital that’s normally refreshing the system just won’t be there,” he says.

Elizabeth Cooper, co-head of Simpson Thacher & Bartlett LLP’s private equity M&A practice, says, “I think the summer is going to be quiet. ... If markets stabilize, I think we’ll see more take-private transactions.”

But other dealmakers say their clients were still showing interest in getting deals done.

“[This year] was never going to be like 2021, which was a record year in every way,” says Stephen Arcano, global head of transactions at Skadden Arps, Slate, Meagher & Flom LLP.

“While there has been a slowdown in 2022, there has been a rebound in interest in transactions. It feels like the pipeline is pretty active, even with meaningful global, financial and regulatory headwinds.”

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