Editor’s Note: This article was revised since its initial publication on July 15. White & Case’s third-party data provider updated its data to reflect developments that occurred between July 15 and July 19 and the article was edited accordingly.
Global dealmaking continued its bumpy return to pre-pandemic levels in Q2. A total of US$1.2 trillion in deals were announced in the three-month period. While up 15% compared to the previous quarter, the total was down by 25% from Q2 2021. Volume, meanwhile, dropped by 22% to 5,902 year-on-year.
Although these figures represent a drop from the record levels of deal activity in 2021, both the number of deals and their aggregate value is still far above pre-pandemic levels: Q2 2019 saw only 5,224 transactions worth US$978 billion.
Interest rate hikes, rising inflation, and ongoing geopolitical uncertainty continued to hamper dealmaker confidence in Q2. This appears to have impacted transactions across the globe, with all regions witnessing a YoY decrease in deal activity.
Chipmaker deal secures top spot
Despite transactions failing to live up to the highs of record-breaking 2021, the technology, media, and telecom (TMT) sector continued to be the most active, by both value and volume. A total of US$348.9 billion in deals were announced in the sector in Q2, down 43% compared to the record aggregate value recorded in Q2 2021. The number of the deals in the sector dropped by 21% year on year to 1,580.
The largest deal announced in the sector—and also in the quarter—was US chipmaker Broadcom’s proposed US$71.6 billion acquisition of cloud software group VMware. The deal is the second-largest tech transaction this year, bested only by Microsoft’s pending US$75 billion purchase of video game maker Activision Blizzard, announced in January.
Supported by an estimated US$32 billion in debt financing, the Broadcom deal reflects the chipmaker’s ambition to become a diversified tech business. Along with Microsoft’s purchase of Activision Blizzard, it signals that large corporate takeovers are still very much a feature of the US tech industry, despite stock market jitters earlier in the year.
Both transactions face considerable regulatory review from merger control authorities. The UK’s Competition and Markets Authority (CMA) announced a formal review of the Activision deal on July 6, while the EU is reportedly considering a probe into the Broadcom/VMware transaction.
Storage demand drives deals
Another significant deal to take place in Q2 was warehouse landlord Prologis’ purchase of smaller US rival Duke Realty Corp. The all-stock deal, valued at US$27.9 billion, follows an earlier rejected offer of US$24 billion in May.
Prologis is the largest industrial real estate investment trust in the world, owning roughly one billion square feet of warehouses and distribution centers used by major market players such as Amazon and FedEx. The deal will add 160 million square feet of industrial real estate to its portfolio across 19 US logistics markets, while adding an estimated US$400 million in annual revenue.
The deal reflects rising demand within the storage market amidst the pandemic-fueled e-commerce boom, which has shown no sign of slowing post-pandemic. The global e-commerce market is expected to total US$5.55 trillion in 2022, according to Insider Intelligence. Global market share is predicted to increase even further—from 21% in 2022 to 24.5% by 2025.
Outlook
The cooling off of the global M&A market in H1 2022 reflects the impact of numerous challenges facing dealmakers. Along with a tightening financing environment and geopolitical uncertainty, increased regulatory scrutiny on deals—particularly in the tech sector—may slow things down further. The inability to agree on pricing, particularly evidenced in the hard-hit retail sector, is also hampering dealmaking.
Yet the host of megadeals announced in Q2 indicates that buyers are still willing to pay large sums for the right targets. Appetite for big-ticket deals will continue to drive activity within the global M&A market in H2 despite considerable economic, regulatory, and geopolitical headwinds.