Megadeals were firmly on the agenda in H1 as more stable inflation and attractive valuations boosted boardroom confidence. A total of 51 deals worth more than US$5 billion each were announced during the first six months of the year—the highest number in this price bracket since H1 2022.
Global deal figures reflect a focus on the top end of the market. Deal value was up year on year, while volume remained subdued. In total, deals reached US$1.65 trillion during H1—21 percent higher than in H1 2023. A total of 18,010 announced deals, meanwhile, was the second-lowest number since the pandemic.
The US deal market clearly dominated activity. Seventeen of the top 20 deals of the year so far all targeted US companies operating across a range of sectors. Three of these deals were valued at more than US$30 billion, signaling renewed confidence in transformational transactions despite regulatory headwinds.
US credit lenders join forces
The largest strategic transaction saw the US’s two biggest credit lenders join forces, in Capital One’s landmark takeover of Discover Financial Services. The US$35.3 billion all-stock purchase is one of the largest deals to take place in the financial services industry since the financial crisis. If the deal completes, it will create a banking and lending giant capable of competing with rivals JPMorgan Chase and Citigroup.
Regulatory hurdles await as Washington ramps up its scrutiny of industry-defining transactions. If the deal does go ahead, it could trigger a wave of consolidation among small to medium-sized banks—a segment of the market under increasing pressure from rising competition and funding costs. M&A presents an attractive option for these companies to boost or preserve market share.
AI hunt drives tech megadeals
The drive to acquire AI capabilities fueled another landmark megadeal in the first half of 2024: US chip design software company Synopsys’s US$33.6 billion purchase of Ansys, a producer of AI-augmented simulation software. The deal, which awaits completion, is the largest to take place in the technology sector since Broadcom’s US$69 billion purchase of VMWare in late 2023.
The tie-up reflects demand for increasingly complex chip design technology used by industry leaders such as Advanced Micro Devices, Intel and Nvidia.
The purchase by Synopsys follows another major tech megadeal announced in the first half of the year: Hewlett Packard Enterprise’s US$14.3 billion purchase of Juniper Networks, another deal driven by the need to improve efficiency through enhancing AI capabilities.
The hunt for AI is a major driver in US tech M&A right now. A total of 1,036 transactions worth US$166.4 billion targeted US tech companies during the first half, representing the highest half-year deal value since H1 2022.
US shale race fuels deals
The US energy sector also performed strongly during the first half. Several big-ticket transactions targeting oil and natural gas companies changed hands, the largest of which saw US oil producer Diamondback Energy agree to acquire shale oil rival Endeavor Energy Resources. The deal comes as businesses race to build their presence in the lucrative Permian Basin, which spans Texas and New Mexico and is the largest oilfield in the US.
The US$26 billion deal will elevate Texas-based Diamondback to the third-largest oil producer in the basin, behind supermajors ExxonMobil and Chevron. It follows ExxonMobil’s industry-defining US$60 billion takeover of Pioneer Natural Resources announced last October, which served to increase competition for prime drilling spots.
The regulation question
US antitrust regulators have made no secret of their intention to clamp down on deals they consider anti-competitive. Navigating an increasingly complex regulatory environment will therefore be key to pushing deals over the line.
As a potentially industry-defining deal, Capital One’s acquisition of Discover Financial looks set to provoke intense regulatory scrutiny. The deal has been described as the first big test for President Biden’s bank merger regulation since the administration issued an executive order in 2021 that prompted the Department of Justice to consider a broader range of factors when assessing antitrust issues.
Synopsys’s acquisition of Ansys also looks likely to receive regulatory scrutiny due to the transformational nature of the deal. China’s antitrust watchdog, the State Administration for Market Regulation, or SAMR, is likely keeping a watchful eye on the potential tie-up, which also needs approval from US, EU and UK merger authorities.
An increasing regulatory focus on deals is impacting deal timings. The length between announcement and completion is growing, currently averaging more than eight months, according to the London Stock Exchange Group. Dealmakers will need to gain a sharper understanding of myriad regulatory requirements to keep the M&A process on track.
Outlook: Will the bull run continue?
The flurry of megadeals announced during the first half of the year speaks to a combination of corporate confidence, strong balance sheets, climbing stock markets and more palatable interest rates. Just as importantly, recent megadeals are not limited to a few sectors but reflect clear strategic motivation across a range of industries—another positive sign.
While the M&A recovery shouldn’t be underplayed, challenges remain on the road ahead. The extent to which regulators may or may not clamp down on deals is a big question, and the run of big-ticket transactions hinges on how the regulatory landscape evolves over the coming year. Some buyers may stay on the sidelines until the picture becomes clearer.
The upcoming US election may also cause dealmakers to pump the brakes until a sense of political stability returns. A question also remains as to whether the major tie-ups announced in the first half of the year reflect a sustained economic recovery, or whether they will prove to be standalone deals. The fact that H1 volume remains muted indicates that activity is skewed toward the top end of the market, with dealmaking in the middle to lower portions yet to pick up pace.
While uncertainty remains, the return of the megadeal in the first half denotes a renewed optimism among big business and is a positive sign for dealmakers looking to transact in the second half of the year.
