Global M&A record first quarter sets the pace for further gains

The OpenAI logo is displayed on a mobile phone in front of a computer screen with output from ChatGPT in Boston. (AP Photo/Michael Dwyer, File)

LONDON/HONG KONG/NEW YORK — Turbulence linked to the war in Iran and swings in valuations have yet to deter corporate deal-making as transactions in the first quarter exceeded a record of US$1.2 trillion, LSEG data shows, and dealmakers say much more is in the pipeline.

Although the number of deals fell by 17 per cent from the same quarter last year, the companies bought and sold were bigger, taking the total value up by 26 per cent. Four of the six biggest deals were companies investors consider to be winning the AI race.

After U.S. President Donald Trump’s “Liberation Day” started a global trade war last April, deals were sidelined for months.

In contrast, the upsurge in the Middle Eastern conflict that began with U.S. and Israeli strikes on Iran at the end of February has done little so far to curb the appetite for deals, bankers and analysts say.

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“This time around people aren’t waiting for things to get better, they are recognizing that volatility is just part of life and they are working within that construct,” said Sam Kim, global head of M&A at Deutsche Bank.

“The conversations aren’t stopping; companies are figuring out a way to make a deal to happen in this environment rather than waiting for things to normalize again. This is the new normal.”

George Holst, global head of corporate coverage, sectors & advisory at BNP Paribas, said the bank’s deal pipeline for the year was up by more than 20 per cent by both deal number and value versus last year.

Leap in deals worth more than US$10 billion

Big transactions – specifically Big Tech M&A – dominated with 22 deals of more than $10 billion signed in the three months ended March 31, a quarterly record, the data shows.

Apart from geopolitical turmoil, advances in artificial intelligence that have created AI winners and losers shaped the start of the M&A year, driving four of the six biggest deals.

OpenAI’s $110 billion funding round accounted for three of them while Anthropic’s $30 billion fund raise tied for the fourth-biggest transaction signed during the quarter, the data shows.

All four deals were equity stake purchases, rather than traditional M&A, a growing trend that accounted for 29 per cent of the total volume for the quarter, LSEG said.

Activity focused on the software companies regarded as AI losers, or vulnerable to disruption from AI, slowed as investors sold their stocks, taking their valuations lower, dealmakers said.

Need for greater discernment

War in the Middle East has caused unprecedented oil supply disruption, record oil market spikes and wild swings in company valuations. Rather than giving up M&A, however, corporate boards have sought to become more discerning.

“Deals are driven by strategic rationale which is stronger than short-term volatility in the market,” said Philipp Beck, head of EMEA M&A, UBS Investment Bank. If the volatility continues for months, instead of weeks, and it throws off inflation, interest rates and growth predictions “then the dynamics may change, but we are not there yet,” he said.

“We have seen a series of market disruptions over the last couple of years and market participants have learned to deal with these shocks,” Beck added.

At Morgan Stanley, Global Co-Head of M&A John Collins said corporate clients still consider M&A to be an important driver of their growth plans.

“To the extent that volatility moderates, we could see a dynamic similar to last year’s busy second half,” he added.

Multinational megadeals

Apart from AI and Big Tech, the focus has been on multinational transactions, which could provide protection against weakness in some economies and offset problems that can be localized, such as supply chain disruption.

“Cross-border corporate activity is a defining trend we’re seeing,” Andrew Woeber, global head of M&A at Barclays, told Reuters. “CEOs and boards aren’t waiting for perfect conditions.”

Cross-border M&A activity rose by 47 per cent from a year ago to a record $454.7 billion during the first quarter.

The United States was the most targeted nation, accounting for 52.4 per cent of cross border transactions so far this year, followed by the United Kingdom at 11.5 per cent.

The standout among cross-border deals was U.S.-based McCormick’s announcement on Tuesday that it was buying Unilever’s ULVR.L food business in the UK, creating a $65 billion global food behemoth.

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In addition, France’s Engie announced last month its $21.3 billion acquisition of UK Power Networks.

For European companies facing the prospect of weakening growth locally, a deal in the U.S. may appeal as growth there is greater, corporate valuations higher and a domestic presence provides shelter from U.S. tariffs.

“We have seen a rise in cross-border deals as companies are searching for growth, but also need to have a local footprint not only as a supplier but a real economic presence,” said Holst.

(Reporting by Anousha Sakoui in London, Kane Wu in Hong Kong and Dawn Kopecki in New York; Editing by Barbara Lewis)