Navigating the Current M&A Cycle, Regulatory Impacts, and 2025 Market Dynamics for Corporate Development Leaders

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You want to keep up with us on the go, head over to LinkedIn and follow M and A Science. I'm your host Kisam Patel, CEO and founder of Deal Room and chief Scientist at M and A Science. Today I'm joined by Joe Mantone, US Financial Institutions News Desk Manager at S M P Global Market Intelligence. You're not familiar with S and P? They're a global financial information analytics company traded on NYSE under spgi. Joe's gonna walk us through some insights from the recent M and A equity offerings market report and dive into current trends, challenges and strategies for corporate M and A practitioners. Joe, how are you doing today?

Very well, Soph.

I'm doing great. Thanks for meeting me over here in Midtown. Hosted by VRC for providing a space to do our podcast today. If you're not familiar with VRC Valuation Research Corporation, check em out. Joe, thanks for taking the time to have this conversation.

Can we kick things off a little bit about your background?

Sure.

Thanks for having me here.

It's a great podc. You guys put out some really good.

Content, so it's an honor to be here.

My Background I'm a trained journalist. I got started in journalism at a pretty early age. When I got cut from the high school baseball team, I realized I wasn't going to play second base for the Yankees. So I started looking around for other options. I first got into sports journalism, but then pretty early in my career I started working for business publications and I've been doing that for more than 20 years now. I'd say I got my first exposure to M and A coverage when I was at the Wall Street Journal. At the time, I was working the night shift. My job mostly consisted of taking articles that were going in the paper the next day and putting them online. Sometimes the day shift would need help. And at the time the Journal had.

This blog called the Deals Blog and it was run by Dennis K. Berman. I'm not sure if you're familiar with that name.

He was an editor for the Journal who overwintol.

He's at a private equity firm now.

So I helped out for that blog for the week. It was a great experience just covering.

Deals for the Journal.

And then from there I joined my current team and started covering investment banks. And what's great about working for S.

And P Global Market Intelligence is we.

Have a ton of access to data.

And we're constantly trying to figure out ways to leverage that data. And as you mentioned, the quarterly research paper that we do on M and A and equity offerings, that's a project.

That I helped start. Now I'm the lead writer for that. With that, we just look at deal trends and what's sort of driving the activity. And something else that we do is we put out these Annual big picture reports that kind of look ahead for the next year. They're forward looking and look at what's going to shape maybe the themes that.

Are going to shape different topics for the next year. And for that project I worked on the M and A paper.

You've been doing this for a while and you're knee deep in data. That's what I'm hoping to learn from you is get a different perspective today. Can you give us an overview of where the M and A cycle is today?

I look at M and A very broadly. I know a lot of your guests on here are practitioners and for practitioners they're in the trenches working on deals and for them I know it always seems very busy, but when you take a step back and you kind of look at deals from the totality, sometimes you get a different perspective. Right now I would say it seems like things are improving from an M and A standpoint and we've definitely seen an increase in M and A, but it's off a very low base. When we look at the global M and A picture, we're still in the midst of the downturn that started in 2022 when rates started to rise. The current activity is nowhere near the record setting levels of 2021. At that time the deal activity was topping about a trillion a quarter and the number of deals averaged around 14,000. We're also pretty below the pre pandemic levels. When the quarterly totals are on 800.

Billion, there were about 13,000 deals a quarter.

But that being said, we have seen some positives in the data. The second and third quarter of 2024 we saw an increase in the number of deals. The increase was small, but it was notable because we hadn't seen that since.

2020, where we saw two straight quarters.

In a row where there's quarter over quarter growth. The third quarter also had year over.

Year growth in the number of announcements and that was the first time that happened in 10 quarters.

I'm talking about the third quarter because the fourth quarter there was a bit of a slowdown with the US election that it was more of a blip. So when we take a step back and we look at the activity where it's increasing, we're nowhere near the top of the market. There's plenty of room to grow, but we're definitely moving up off the low.

Point, which kind of looks like right now the low point was the third quarter of 2023.

Is there any signals or trends that differentiate this downturn from the previous downturn?

The last Time we saw a sustained downturn in M and A was post rate financial cris. And from a level of activity standpoint, it feels similar to the 2012-2016 timeframe. Companies were the time were risk averse. They were still the shock from the financial crisis had not worn off. The activity wasn't terrible during those years, but it was just bumping along pretty lackluster. And that's how it felt the last couple of years. Executives have just been worried about the economic outlook and just not pulling the trigger on deals. But a big difference between now and then is interest rates are higher. Interest rates were so low for so long that even though they're coming down now, they're still very much higher than they were from anywhere from the 2008.

Until 2022 when the rate hiking cycle began with the higher rates. It just makes the M and A math more challenging.

Yeah, the interest impacts it. Cost of money goes up. Then people think twice about the terms of their deals. Certainly given this recent report, what are factors that are driving the increase in global M and A announcements and but headwinds are still slowing growth in 2024.

We did see an increase in large deals really started in late 2023, the fourth quarter.

There were some large oil and gas deals then.

And then it carried over to 2024. There were 11 deals that had a value over $10 billion in the first quarter of 2024. And going back to 2018, there were only three quarters that had more deals in that above $10 billion then those quarters were. There wasn't a lot higher. It was 12 to 14 deals in those quarters. So it was a pretty big start to the year for large deals last year. And the number of large deals did slow as 2024 went on. And again that was part to do with the US election. As the election neared, the number of deals slowed down, but activity picked up almost right away. Prior to the election, the US had.

Been the driver behind the increase in.

Large deals, which I thought that was interesting. Just because there was so much increased.

Antitrust scrutiny from the Biden administration. It was surprising to see those deals.

Come to market under a different regulatory regime. The growth could have even been even higher. So that was certainly a headwind in 2024.

Regulators and interest again, from your perspective, what's currently missing from M and A activity? Are there areas where dealmakers should be particularly focused or vigilant?

M and A is just not quite firing on all cylinders. We've seen pockets of growth and spikes in certain areas for Instance, M and A activity in Europe jumped in second.

Quarter, but then in the second half.

Of the year it fell down. The opposite was true in Asia. Activity was slower in the first half.

But picked up in the second half.

What we didn't see in 2024 was them increase together and stay up.

It was offsetting each other.

We kind of saw something similar in the US when looking at different sectors. Some colleagues of mine, they work for.

A team called 451 Research and they do a ton of work on M and A in the business IT innovation space. They focus on tech M and A.

Something that they have been highlighting is how some serial acquirers, some tech companies who have been serial acquirers in the past have been pretty much sidelined recently. One interesting stat that we had in the M and A Outlook paper was that Microsoft, Adobe and Oracle collectively spent.

$78 billion across 99 deals between 17 and 21.

Each of them did a small deal.

In 2023 and then were silent in 2024.

They were pretty much sidelined, but other.

Areas like oil and gas was very active.

Again, just not firing on all cylinders there. Something I've been hearing a lot of chatter about is the lack of of private equity activity. It does kind of seem like there's.

A turn there and things might be.

Picking up from the private equity standpoint. PE has a ton of capital to put to work. In 2024. We did see a number of large deals from private equity firms. It was one of the most active years for private equity backed MA transactions.

Of $5 billion and up.

And also a lot of what we do is we listen to earnings conference calls of executives over the summer. It seemed like there was a bit of a tone shift from private equity. Our private equity news team puts out.

This sentiment analysis that's based on language used by executives and analysts earnings calls.

We look at Apollo, Blackstone, Carlyle and KKR pretty consistently. Their sediment was trailing their average net positivity. Sediment was trailing the S&P 500. But in the third quarter it pulled even.

It got decidedly more positive.

And I really think what was happening there was private equities was waiting on the sidelines before a change in the.

Rate cycle and then once it came and then their tone shifted.

We've seen the Fed recently pivot to lower rates. How do you see this impact? Acquisition financing valuation?

It's certainly a catalyst for M and A. The net take home is that bid.

Ask spread just narrows and that should definitely facilitate more deals.

Just lowers the cost of acquisition financing which gives buyers more wherewithal and that.

Can certainly boost valuations that the sellers receive.

And we have seen evidence of it already headed into December. Our data shows that the implied enterprise value, the EBITDA on global M and.

A had really stepped up to what.

It was earlier in 2024. And actually by the end of 2024 was pretty much close to the 2021.

Levels, which kind of did a double take when I first saw that. But yeah, it was pretty interesting how quickly it changed.

Interest goes down, EBITDA goes up. What should M and A practitioners consider in terms of financing strategies in this changing environment?

Explore options. One of our big picture reports focuses on credit. I didn't work on that report.

We have a talented team who put it together.

And what they were talking about in there was how the overall credit market is growing and new structures are developing.

We saw obviously there was a proliferation of private credit funds that have come to market in the last few years, but now we're starting to see more partnerships.

Citigroup and Apollo announced a $25 billion fund. That's an example of one of those. And the private market is just really helps companies that may have otherwise faced unfavorable terms in the public markets so it can bring together alternative arrangements. Private credit also stepped in because banks had stepped back recently in recent years.

And banks had been tightening their lending standards after the March 2023 liquidity crisis.

And they were pulling back because there.

Was concern about credit quality getting worse. And that really helped the private credit funds fill the gap there.

But what's happened though? The deterioration in credit really hasn't come to light. Banks in pretty good shape. I do think banks are going to get more aggressive on the lending front.

They're looking for loan growth right now.

That just will give companies more options.

Out there from thinking about financing of.

All these private credit funds. You have a good point. There are so many of them now, every level, whether you're doing a really big deal or even a small deal, you think that's going to tighten up?

Definitely. The increased competition will make it more challenging for them. But the fact that banks are trying to through those partnership funds, there's interest in keeping some of that going.

Along the lines.

Your report highlights a recent drop in equity issuance. Could you share insights into the investor sentiment behind this? Are there any indicators for a rebound in IPO activity?

We did start to see some pickup in IPOs during the third quarter of 2024. For U.S. iPOs, the total value raise.

In the third quarter was higher than.

The previous two quarters, which was kind of interesting because normally activity slows during the summer months, but the bulk of activity came in July and in August volatility spiked and we had that weaker than expected jobs report. And there was after that volatility spike.

Then the IPO market sort of became.

A wait until next year story.

We had to pause around the election. And then once you roll into the holidays there, everything is just the windows.

Set to the IPO are smaller. But to answer your question, I really do think 2025 we'll see a pickup.

It's just been quiet for way too long there and there's a lot of pent up demand.

From what you've seen, how does volatility affect corporate buyers approaches to equity financing and public market exits?

Yeah, I mean the volatility just makes everything more tricky. The demand for shares you're trying to exit might not be there and the.

Pricing might not be at the level that you're looking for.

If you're doing a stock transaction and you get the price right, investors could.

Reward the buyer stock and then both the seller and the buyer could actually see some benefit from it.

Volatility definitely has an impact on equity deals, but also volatility also has a.

Significant impact on M and A deals in general.

When there's volatility, executive confidence just gets weakened about the economic outlook. At the end of the day, volatility.

Is just not good for all transactions.

I would say there's a bad taste and the appetite for doing public to public type of deals and then even delaying some of these IPOs.

Absolutely.

Asia Pacific saw notable deal activity growth that you mentioned while Europe faced political and regulatory uncertainty. What can corporate M and A leaders learn from these regional dynamics?

I think the point that we were trying to make in the report was that the M and A recovery has been a bit uneven. Even though Europe had a very strong second quarter. But it came back down. It was offset by the growth in the Asia Pacific. To me, it just seems that corporate M and A leaders are being selective about the deals they pursue. It's not 2021 or 2007 where it's just deals everywhere.

It's just finding the right transaction and pursuing them.

Do you foresee cross border M and A becoming more prominent or geopolitical concerns still holding things back?

A big question is how tariffs will impact the market. Expecting to see the Trump administration utilize tariffs more again, there is a school of thought out there that tariffs can lead to more deals. Inside the U.S. the thinking is that companies based outside the U.S. will look to do deals inside the U.S. to avoid tariffs. But once you get into this era of protectionism and trade wars, regulatory approval can become more challenging. So larger companies might be able to feel like that they have the resources to withstand a drawn out regulatory approval process and the expense of it. Smaller companies might be better off like.

Turning to joint ventures or some sort of partnerships.

So it's quite possible that we can see an increase in the transaction values across border deals when we look at the big picture. But we might just see fewer deals.

Because again, the bigger companies might feel like they can pull it off while the smaller companies might not want to dedicate the resources to it.

It's interesting the impact of these political dynamics, how they're going to affect corporate M and A strategies. How do you see this playing about more specifically domestically and abroad?

Elections do matter and government certainly plays.

A role and can impact M and A.

But what I would say is that overall the economy is the biggest driver to deal making. M and A slowed down during the early part of the Obama administration.

That was driven by the fallout from the great financial crisis.

M and A slowed down in the early 2000s during the Bush administration, but that was fallout from the dot com bust. Under the Biden administration, the slowdown was largely driven by the need to raise.

Interest rates to combat inflation.

However, there is no denying that the.

Biden administration has been more aggressive and challenging mergers and making and drawing out the process.

They brought up some novel arguments. Some of the even some of the.

Smaller deals under the Hart Scott Rodino act.

Some of those processes were drawn out and there was just an increase in.

The amount of information that was demanded. Second requests.

This had a chilling effect over some.

Deals I mentioned earlier.

Tech, large tech deals.

There's certainly. We certainly saw fewer deals come to market there.

There is definitely a lot stricter antitrust measurements. What's your view in the current census on the issue and any perspective on how M and A teams should be preparing for the heightened regulatory scrutiny?

I don't know how lasting of an.

Impact the Biden administration will have on M and A.

Most of their changes were about interpreting or adjusting guidelines they didn't have a lot of success in. So there was not a lot of. There's not much in the way of precedent set in cases. I believe with the Biden administration there was more coordination with global regulators and we'll probably see less of that from the Trump administration. That's one thing to think about as we go forward. That Being said, I think it's sort of an open question on what the.

Antitrust is going to look like under the Trump administration.

The tech industry is certainly expecting to face more antitrust scrutiny. And during the first Trump administration, we certainly did see some challenges to deals. The numbers didn't go down to zero.

Or anything like that.

The consensus is more along the lines.

Of we'll kind of wait and see what happens. Everyone's more bullish on M and A right now.

If there's a tax relief given the.

Company, that's obviously going to give them more ability to make acquisitions. And if we're going to stimulate the economy, that bodes well. But interesting to see how the antitrust thing is going to play out.

It is. That's tough to say what specific strategies are there for mitigating regulatory risk. Have you seen anything, especially with these industries that are more prone to it, like tech and finance?

So the one area that I'm most familiar with there, I would say is financials. And one strategy that we've heard banks.

Talk about a lot is reaching out.

To regulators before announcing deals. On their deal calls, they're telling their investors that we've been talking to regulators, we feel confident and they're saying that because the deal, it's been elongated the process and that obviously adds expense to deals. But reaching out to regulators and getting a comfort level is something that banks.

Have been doing before announcing a deal.

Getting ahead of it.

Yeah, for sure.

Well, and I think it's really cool how you guys analyze earning calls. Is there any insights that you've picked up from recent earning calls that could point to evolving M and A strategies or shifts in corporate priorities?

An area where I focus on a lot is investment banks earnings calls. We definitely saw or heard a shift in their tone as the year went on in 2024, the early part of the year, executives were Talking about how 2024 is more of about gradual improvement in M and A after two down years. But then the outlook became more bullish.

As the year went on. In the outlook for 2025, and this.

Was even before the presidential election, was.

Just driven by the rate cutting cycle.

And again, it's not just corporate activity where there's being more bullish.

They're also talking about an increase in private equity activity.

The headwinds that they keep talking to.

About is the global conflicts around the world and just the closing times are being elongated.

But the private equity piece is really interesting because the increase in private equity.

And how much of an impact that they have on the overall deal environment. It's pivotal for the investment banking business.

That's really interesting that you extracted that. You know, one of the things that your report mentioned was that the I banks are very much focused on recruiting. Like what indicators would you pick up from that in terms of the broader landscape?

What tends to happen during the slower M and A times is the advisory focused firms, the firms that are just focused on M and A and providing advice, they tend to pick up more talent in the slower times.

The larger bulge bracket firms are cutting.

Costs and that can lead to some talent becoming available. Also, I bankers have a little bit more flexibility to move around when there's less deal activity. If you're not working on anything that's imminent, you're in a better position to move and sit out that period of.

Time on your garden leave.

And for the hiring company, the hope is that new hire can get set up during the slow time and is ready to take advantage when the activity picks up.

On a recent Moles earnings call, the.

CEO was talking about how headcount can get elevated during slower M and A times. And just because you need more staffing to service clients who have deals that.

Are stuck in the pipeline, he was.

Saying we take on an assignment 18.

Months later, we can't just drop it.

We have to have people to service that client. I definitely think that the headcount gets.

A little bit more, goes up during the slower times. And then for those advisory focused firms.

I think they just view it as.

A time to pick up talent.

What are some practical takeaways that corporate M and A teams can use to prepare for the upcoming year?

So something to think about right now is the assets that you covet that are backed by private equity.

Check in on them.

Our private equity news team recently put out a chart that showed the average holding period for a buyout portfolio company is at a 10 year high in October. Those private equity firms, they need to move those assets. They have LPs that want to see.

Some capital returns and the lack of.

Capital returns that they're giving those LPs that hinders their ability to raise new funds. I'm not suggesting that private equity is going to be selling everything, but it seems to me that now would be a good time to reach out and see where they're at with some of.

Those portfolio companies that they've been holding onto a long time and maybe they could be looking to move them.

I think that's a great tip. Do you have any predictions for how M and A deal structures Financing or even diligence might evolve. If we move into 2025, it just.

Goes back to private equity. On the deal structure side, whether it's exits or entries, it's going to be.

A more active year for deals involving financial sponsors.

On the corporate side, I could see more growth oriented M and A happening for the last couple of years. From my perspective at least, it seems like it's been more about consolidation and divesting non core assets. That's largely a reflection of companies not having confidence about the economic outlook and trying to build a moat around their core business. It seemed like for a period there.

We were just constantly talking about when.

The recession was going to happen and that's not a great time to be looking to expand to a new area. So I can see companies looking to.

Get back to looking for avenues to expand and build onto their existing business.

Focus on Growth what would be your top advice for corporate practitioners to stay competitive? Particularly ball to market Tight margins? Increasing regulation I don't know if I.

Have anything too novel to say here. You know, something that I'm always talking to my team about is just think about how best to serve our clients. You know, and I think that's good advice for everyone. If you have a good understanding of what your clients need and what they.

Want, that can really help anyone manage through a difficult period.

Are there any like areas that are overlooked where corp dev teams can get an edge?

Well, again, you know, I don't know if anything too novel here, but something I heard on one of your podcasts you had an executive on here talking about how they set up an internal referral program. If I remember correctly, the employees would actually get a bonus if they made an introduction to a target company that that the company ended up purchasing. And exactly what I was saying, how the pipeline was filled because there was good quality targets in the pipeline because the employees really have a good understanding of what the company is looking for. And obviously that sort of strategy won't work for every company.

It probably works best for companies that.

Have a really active M and A strategy. But it just sort of reminded me of the whole notion of aligning the incentives for your employees with what outcome you want your company to produce. I remember listening to an executive talk.

About how he helped turn around an.

Ibank and he was just saying that the biggest advice that he gave to his team was just service the clients that are going to pay you money and work for the clients that are.

Going to be able to actually execute deals.

That's also tried and true giving advice. What are the areas or emerging sectors you see that are going to get the Most activity in 2025?

The easy answer there is AI. Our 4.5One team put out an Outlook report at Interestings that they were saying that through the third quarter of 2024 a quarter of the tech M and A value involved a target with machine learning capabilities and that was up from a fifth the year before and 10% in 2022. Just more deals. AI is more going to be a.

Part of M and A going forward.

All in on AI. Any recommendations that practitioners can position themselves to capitalize on AI opportunities?

I guess what everyone's trying to figure out is how to get value out of it.

Obviously we have the hype point that.

They made in that paper was just that customers and clients are going to expect it.

It just helps with that level of.

Service figure out I guess don't overpay is the advice there.

Yeah that's a fair point is really try to get predictable on how you're going to monetize it. My biggest takeaway is the data point on their private equity firms have just highest hold period. Which kind of gets me thinking to double down in looking at portfolio of PE firms and starting to refoster some of those relationships. Not to put too big of a commercial plug, but any good tools that you can start analyzing companies and private.

Equity portfolios, well you can certainly do that.

On our platform.

We have a pretty good breakdown of.

PE firms and where their portfolio investments are and by sector and then you can drill down and look at when the investments were made and it definitely gives you some idea of the holding time and something they may be ready to exit.

I'm going to test it out so I can report back to the podcast listeners here. Hey Joe, one last thing I got to ask you is what's the craziest thing you've seen in M and A?

Craziest thing? I guess for what I do, the craziest thing I've seen is just during COVID was it second quarter of 2020, the M& A just came to a halt. It just stopped and then it came.

Roaring back to life.

When it halted, I remember I think it was April 2020 listening to Evercore's.

Earnings call and the CEO was just.

Talking about how he didn't know when.

The appetite for M and A was going to return.

And when you hear executives talk like that you definitely take notice. But later that same quarter M and A just picked up and it came back with a vengeance the third quarter of 2020 it was over 900 billion.

In global M and A activity.

And then we just went on this run of trillion dollar quarters just for a long time and it was just crazy to think back how it just.

Stopped and then it turned on a dime that was again roaring back to life.

Yeah, we went to a full sprint, dead stop, full on sprint.

And I'm sure you've had conversations with I bankers. They talked about how they became more.

Efficient during that time just because everything was done over zoom and trying to you didn't have to travel everywhere. So sped up the process.

In some ways it did a little bit. This is a fun conversation. Joe, thank you so much for taking the time helping me become a better M and A scientist.

Yeah, I had fun as well, so.

Thank you very much for having me.

Fellow M and A scientist. If you got through this, I'd love.

To hear your feedback.

This is the first time I've got to interview journalists and base an interview off some data points. Love to hear if this was helpful. If not, you can tell me that I'm open to criticism because that's how I know to do more of these interviews or not. Reach out to me usually LinkedIn or the email. Till next time. Here's to the deal.

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