The mergers and acquisition market is hot this year, with strategic acquisitions leading the way and the number of transactions in the U.S. hitting a record high. But private equity firms are taking a smaller piece of the pie, as the share of PE deals compared to the total number of M&As is shrinking.
M&A market reaches $1.8 trillion
S&P Capital IQ Senior Director Richard Peterson revealed the findings of the firm’s Global Market Intelligence unit in a recent report shared with ValueWalk. He found that only 3.4% of the $1.8 trillion in announced M&As this year are leveraged buyouts. This means that 2015 is on track to be the third year in a row in which LBOs‘ share of total M&A transaction value has declined.
Carlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More
Further, S&P Capital reports that with only 3.4% of the deal value this year coming in the form of an LBO, the share of private equity firms’ purchases has reached its lowest point in 15 years. In 2000, leveraged buyouts made up 2.7% of the $1.72 trillion in M&As that were announced that year.
Not many large M&A deals
Peterson says one indicator of just how low LBO activity has been so far this year is the fact that there has been a dearth of big deals. Year to date, there have been only 13 LBOs that had a value of at least $1 billion. Last year, there were 28 leveraged buyouts with a value of at least $1 billion. He adds that this year is on track to have the fewest LBOs worth at least $1 billion since 2009. In that year, there were only six LBOs with a value of $1 billion or more.
Further, he notes that this year is setting a new record for strategic M&As worth at least $10 billion with 34 of them. However, the last time LBOs in the U.S. surpassed $10 billion was in early 2013. That was the year Michael Dell and Silver Lake Partners agreed to pay $20.5 billion for Dell. In the same year, 3G Capital and Berkshire Hathaway agreed to pay $23.4 billion for H.J. Heinz.
Resources available for M&As
Peterson’s sources told him that global buyout funds are holding nearly $500 billion in cash, which means there are plenty of resources to do deals. Of course it remains to be seen whether they will tap into all this cash to do any more deals.