The muted levels of mergers and acquisitions and equity fundraising activity – which forced most major investment banks to cut jobs in 2022 – is expected to continue in 2023, according to a survey of more than 500 dealmakers.
Half the dealmakers surveyed by data provider Refinitiv expect M&A volumes to remain the same or decrease compared with 2022. Meanwhile, nearly half (45pc) said they believed equity capital markets (ECM) activity would remain the same this year as was last year, while 12 per cent predicted a decrease.
Of those who thought there would be an increase in M&A activity, the average expected rise was 6.6 per cent compared with 2022. Those anticipating growth in ECM activity expected a 6.4 per cent increase.
So far this year, M&A activity has slumped by 57 per cent compared with a year earlier to $282.9 billion. Last year, deals worth $3.7tn were announced, but this was a 35 per cent decline compared with 2021. ECM activity has tumbled even further, with a weak initial public offering market pulling down volumes by 65 per cent last year.
The slump in deals has prompted large investment banks to cut jobs for the first time since the onset of the pandemic and rein in pay for dealmakers after a record 2021when banks hauled in $130 billion. ECM bankers have been at the sharp end of many of these layoffs and many are predicting further cuts if dealmaking activity does not rebound this year.
M&A activity has been stymied by rising interest rates, gridlocking leveraged finance markets, surging inflation and the war in Ukraine. Matt Toole, head of deals intelligence at Refinitiv, said there needs to be “significant signs of improvement for a boom to return”.
He said: “While financing is more expensive and stock prices have pulled back, there can also be opportunities for M&A as valuation move lower and companies look for growth, but a clear business outlook and strong rationale for a deal will be required.”
A poll was done of top dealmakers in the UK about the outlook for 2023 investment banking activity in December. Most said they expected activity to return in the second half of the year, while the first six months of 2023 would remain challenging.
Meanwhile, HSBC is planning to hire dealmakers in the Middle East this year, as the UK lender anticipates a surge in activity in the region. The lender is “developing more resources” in the Middle East on the back of improved performance for dealmakers in 2022, its chief executive Noel Quinn told journalists during its fourth quarter results presentation.
“We are developing more resources for the Middle East, which is a good growth opportunity,” Quinn said. “That is not just for the short term, but I see good growth opportunity over the medium and long-term, so we are increasing our investment in the Middle East.” Profit in HSBC’s global markets unit in the Middle East and North Africa hit $861 million last year, an increase of 7 per cent compared with a year earlier. In Saudi Arabia, which remains one of the smallest markets, profit jumped 46 per cent to $95 million.
Quinn’s comments followed earlier remarks by Greg Guyett, HSBC’s head of global banking and markets, who told Reuters last month that the bank would increase head count in Saudi Arabia by between 10 per cent and 15 per cent and would be hiring dealmakers “as fast as it can”.
The Middle East has not been immune to the downturn in dealmaking, with fees slipping by 32 per cent to $1.4 billion in 2022, according to data provider Dealogic. However, initial public offerings in the region surged by 56 per cent to $23.7 billion in 2022, amid a global downturn during which the value of raised equity capital dropped by 72 per cent. Citigroup and Goldman Sachs have also said they want to recruit bankers in the region. (The writer is our foreign correspondent based in the UK)
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