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HomeMarketDeals Are Creeping Back. Don't Expect a Surge Just Yet.

Deals Are Creeping Back. Don’t Expect a Surge Just Yet.

Deal volume remains anemic despite a flurry of deals Monday.

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There have been a lot of deal headlines as of late but that hasn’t meant volumes are climbing from the dismal pace at the end of last year. At least not yet.

Monday looked especially busy with
Public Storage
(ticker: PSA) making an unsolicited $11 billion offer for
Life Storage
(LSI) while gold producer
made a $17 billion bid for Australia’s
Newcrest Mining
(NCMGY). Elsewhere, Bloomberg reported that life sciences company
) is interested in acquiring

Life Storage and Newcrest are considering the offers. Catalent didn’t respond to a Barron’s request for comment and declined to comment on the Bloomberg report.

But even with the news, deal making is still slow compared with recent periods. There have been 1,081 deals announced in the U.S. so far this year totaling $65.1 billion, according to data from Dealogic. That pales in comparison to the 1,718 deals amounting to $234.1 billion dollars over the same period in 2022 or the 1,385 deals totaling $213.7 billion in 2021. During those prior periods, the urge to merge was helped by low interest rates but with the Federal Reserve lifting rates rapidly over the past year, the cost of financing mergers grew, making deals less enticing for buyers.

Even though 2022 started strong, deal volume crumbled after the Fed’s rate-raising campaign began. Total U.S. mergers and acquisitions fell 42% to $1.6 trillion for 2022 from the previous year.

That has been bad news for investment banks such as
Goldman Sachs
(GS) and
Morgan Stanley
), which derive a significant portion of their revenue from advising on mergers and acquisitions. For the fourth quarter of 2022 these banks as well as
JPMorgan Chase
(JPM) and
Bank of America
(BAC) saw year-over-year investment banking revenue roughly cut in half.

After last year, bank executives are hopeful things will improve but they are also cautious. Part of the reason for last year’s sharp decline in deals was the volatility and uncertainty spurred by the Fed Reserve’s rate hikes. Even though the Fed seems intent on keeping rates higher than they have been in recent years, the pace of rate hikes is expected to slow, which should give potential acquirers comfort.

In a call with analysts last month, executives at Morgan Stanley said that deal pipelines look strong, but that companies were hesitant to pull the trigger.

“I am highly confident that when the Fed pauses, deal activity and underwriting activity will go up,” James Gorman, chief executive at Morgan Stanley said. “If the market is really volatile, it behooves CEOs, particularly those relatively early in their careers, to be a little cautious, and that’s what we’re seeing. That will change.”

Tech remains the dominant area for deal making, accounting for just over a quarter of announced transactions, according to Dealogic. The sector is often a popular one for M&A and the recent drop in valuations may have made some acquisitions more palatable. Healthcare, energy, and professional services each account for roughly 10% of announced transactions.

So far, U.S. deal count levels this year are on par with levels seen in 2019—one year before the world knew of Covid-19. There were 1,016 deals announced at the beginning of 2019—slightly below the 1,081 deals announced so far this year—but the deal size was much bigger then, totaling $228.9 billion.

Until there is more clarity on the economic front, expect deal making to remain tepid. That could swiftly change when there is more certainty about the Fed’s plans.

Write to Carleton English at


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