Conference Presentation, Panel, Fireside Chat
M&A Metamorphosis: How Private Capital and Tech Are Reshaping Financial Markets | Global Conference
Milken InstituteRomaine Bostick, Anu Aiyengar, Aly Alibhai, Vanessa Dager, Jason Greenberg, Andrea Guerzoni, Ali
- M&A activity is predicted to largely recover in the second half of the year and reach a normalized, robust level within 12 months, provided trade policy uncertainty, macro factors, and recession fears subside over the next couple of months.
- Market sentiment has shifted from excessively optimistic in late November to excessively pessimistic currently, causing companies to deprioritize M&A in favor of hoarding cash, increasing efficiency, and restructuring, with deal processes slowed, stopped, or postponed to post-summer.
- Selectivity is expected to increase significantly due to the need for higher conviction, with deal sizes capped at sub-$5 billion and potentially sub-$2 billion, while the "hurdle to say yes" to acquisitions rises naturally.
- Cross-border M&A involving the U.S. is currently decreasing and expected to be dampened by regulatory changes, national security concerns, and potential policy volatility every three to six months, whereas domestic activity may remain fair depending on conditions.
- IPO markets are described as frozen or restrictive, likely keeping private companies content with their current status due to high costs of being public, though private firms may leverage creativity in deal structuring like earn-outs to differentiate themselves.
- Private equity firms are expected to navigate a challenging next two to three years by continuing screens on take-privates for companies lacking scale, while average holding periods may extend from four to five years to between seven and eight years.
- Liquidity demand is expected to increase as LPs can no longer indefinitely extract capital, creating a long-term market requirement for an increase in M&A relative to a baseline, with continuation vehicles seeing tremendous growth as a partial liquidity event.
- Geopolitical scenarios are being embedded into financial planning, adding complexity to modeling, while a U.S. venture industry faces a risk of disappearing if net asset value distributions continue in an inverse pattern over 16 years.
- Specific regional and sectoral outlooks include massive German infrastructure spending driving defense technology acquisitions, European champions emerging through U.S. and European capital mixes, and AI deals growing to constitute over 40% of tech deals from a previous 30% baseline.
- Activism is expected to remain a very active asset class with nearly $150 billion in assets under management, becoming more nuanced in Japan and globally to ensure requests stick if direct sales are blocked.
- Small public companies with market caps under $5 billion face even more difficult conditions without scale, while the pain from tariffs is expected to arrive soon following a pull-forward of demand observed in the first four months of the year.
- A divided U.S. Congress is anticipated in 18 months, with policy actions made in an expedited manner during the current election period, creating a consensus that while tariffs will occur, they will not fully hobble U.S. business in general.