Amit Das
Is an M&A boom on the horizon?
- Historical data from the past 40 years reveals that the value of M&A deals has never declined for three consecutive years.
- The average deal volume from 2014 to 2022 remained at 4.5% of worldwide listed equity value, never falling below 3%. A return to this average suggests the potential for a $4.7 trillion explosion of deals in 2024.
- With expectations of the upward cycle of interest rates in the US and Europe coming to an end, acquiring capital is anticipated to become easier, further fuelling M&A activity. This has already proven to be the case during Q1 of 2024.
As M&A activity is forecasted to heat up in 2024, focus is turning to how M&A news stories can deliver trading gains. Despite a significant drop from its peak of $5.7 trillion in 2021 to $2.9 trillion in 2023, global M&A activity rebounded by 23% in Q4 of 2023 compared to Q3, marking the strongest quarter for dealmaking since Q2 of 2022. Industry experts interpret this uptick as a signal that the dealmaking landscape, after two years of stagnation, is poised for a resurgence in 2024 as noted by Reuters in 'The deal dam will burst in 2024'.
Several indicators support this outlook. First, historical data from the past 40 years reveals that the value of M&A deals has never declined for three consecutive years. Second, the average deal volume from 2014 to 2022 remained at 4.5% of worldwide listed equity value, never falling below 3%. A return to this average suggests the potential for a $4.7 trillion explosion of deals in 2024. Third, with expectations of the upward cycle of interest rates in the US and Europe coming to an end, acquiring capital is anticipated to become easier, further fuelling M&A activity. This has already proven to be the case during Q1 of 2024.
Worldwide M&As up 38% to two-year high; mega-deals over $10 billion double
M&A activity totals $797.6 billion during the first quarter of 2024, up 38% compared to the same period last year. The year-to-date tally marks the strongest first quarter period for dealmaking since 2022 and the largest year-over-year Q1 percentage increase since 2021 (up 78%). By number of deals, worldwide dealmaking has decreased 31% so far this year.
Global M&As for deals greater than $10 billion have more than doubled compared to the same period last year, while deals under $500 million have registered a decline of 19% by value and 33% by number of deals compared to a year ago.
US M&As account for 61% of Q1 activity, a 35-year high; Europe dealmaking up 61%; APAC M&As decline 28%
US year-to-date M&A activity hit $485.4billion, a 78% increase compared to 2023 levels and a two-year high. US dealmaking accounts for 61% of global activity, the highest percentage since year-to-date 1989. M&As in Europe have reached $142.1 billion so far this year, up 58% compared to a year ago and a two-year high. APAC M&A activity for YTD 2024 totals $104.5 billion, down 28% from year-to-date 2023 and an 11-year low.
Trading on M&A news
While this is exceptionally good news for M&A investment bankers, traders eye significant opportunities in the securities market fuelled by public information on M&A activities, often found in trusted news sources like Reuters. In fact, during 2023, Reuters had a 46% increase of M&A scoops and exclusives versus 2022.
Seconds can make an enormous difference to low latency and ultra-low latency traders seeking to profit from M&A news. News services compete to break stories first; for instance, Reuters reported the news of Japan's Nippon Steel to acquire US Steel for 14.9 billion 122 seconds ahead of competitors. In this short window, algorithmic trading models working off a machine-readable news feed could have swiftly executed transactions that resulted in a tidy profit. Hence, the quality and timeliness of news data is crucial.
US Steel Corp Trade Price
The anticipated boom in global 2024 M&A activity could also unlock lucrative opportunities for financial firms seeking ways to generate value for customers and shareholders with machine-readable news:
- in ultra-low latency algorithmic trading models, where seconds count.
- by leveraging structured and unstructured data together in AI-based models to predict potential M&A targets.
The long-established practice of leveraging machine-readable news feeds to profit from economic indicator announcements is extending to new assets whenever traders recognise the factors for success e.g., trusted sources, speed, and machine-readability. Compatible with ultra-low latency market data feeds, sophisticated Large Language Models (LLMs), and intense competition in breaking M&A news opens fresh avenues to enhance alpha and enables dealmakers to spot M&A targets first.
Predicting M&A deals
Financial firms have long sought to develop models capable of forecasting potential M&A targets using machine readable news and other data. However, crafting these models is no easy feat. Recently, LSEG’s StarMine team launched its M&A Target model, the first commercially available model employing an LLM (Large Language Model) to rank potential M&A targets among over 38,000 public companies within the next 12 months. This model combines various structured data, including security prices, company fundamentals and corporate actions, with outputs from models utilising machine readable news to gauge the likelihood of companies becoming M&A targets. LSEG’s extensive point-in-time data and sophisticated use of symbology helps ensure the structured data delivers the most accurate outcomes. This recent article on Risk.net provides further insights into the model.
With the anticipated boost in M&A transaction volumes in 2024, the application of machine-readable news to use cases is expected to accelerate. To maximise profits and maintain competitiveness, investment banks, buy-side firms and risk management teams will want to ensure they can deploy unstructured data in innovative ways.
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