Bankers Brimming With Optimism See Dealmaking `on Steroids'

Updated on
  • $164 billion of merger deals announced, most since 2000
  • IPOs proceeds to climb in 2018, Deutsche Bank’s Hantho says

A global boom in dealmaking is set to continue this year as companies use cheap funds for acquisitions and sell more shares to the public, according to top bankers at JPMorgan Chase & Co. and Deutsche Bank AG.

“There is an inclination for chief executive officers to want to do more acquisitions since capital is available at a very attractive rate,” JPMorgan’s investment-bank head Daniel Pinto said in an interview at the World Economic Forum in Davos, Switzerland. “When you have the global economy growing the way it is now, CEOs and their boards feel confident to try more investments or acquisitions. It’s very possible we will see more deals than we did last year.”

The value of mergers announced so far this year totals $164 billion -- the highest since the start of 2000 -- as interest rates remain near record lows and global economic growth spurs expansion. President Donald Trump’s overhaul of the U.S. corporate tax, which cut rates and reduced the levy on bringing foreign earnings back to the U.S., may also fuel dealmaking.

Mark Hantho, Deutsche Bank’s head of capital markets, said proceeds from initial public offerings globally should also increase dramatically this year, with the largest deals coming from China.

“The dialog on going public globally in 2018 is on steroids right now,” Hantho said Thursday on the sidelines of the Davos gathering. Companies raised about $222 billion from IPOs in 2017, with Asia accounting for the largest share at $95 billion, followed by Europe and the U.S.

Steinhoff Loans

Such comments underscore the upbeat tone adopted by most Davos delegates this week despite warnings by some against repeating the mistakes of the pre-crisis years. BlackRock Inc. Chief Executive Officer Larry Fink on Thursday echoed Bridgewater Associates CEO Ray Dalio in warning investors against sitting on cash.

Andrea Orcel in Davos on Jan. 26.

Photographer: Simon Dawson/Bloomberg

UBS Group AG’s head of investment banking, Andrea Orcel, on Friday sounded a slightly more skeptical tone, saying while takeovers will continue to be driven by global growth, confidence, changes in taxation in the U.S. and regulatory relief, the volume this year may end up being lower.

“M&A has been strong but it is actually slightly declining from 2016, 2017,” he said in a Bloomberg TV interview with Francine Lacqua.

Amid the boom in dealmaking, banks have been reminded in recent months that financing acquisitive corporations can come at a cost. South African retailer Steinhoff International Holdings NV saw its fortunes crash in 2017 amid an accounting probe and a collapse in its shares. JPMorgan was one of Steinhoff’s lenders and reported a writedown of $143 million in the fourth quarter linked to a margin loan to the firm, people with knowledge of the matter have said.

Fees Decline

The New York-based bank is also a lender to Chinese conglomerate HNA Group. The company is under increasing pressure after a debt-fueled acquisition spree, with three banks said to have frozen unused credit lines to HNA units after they missed payments.

Pinto, 55, declined to comment on specific clients.

Fees for investment banking are compressing as companies hire more advisers on single deals, he said. Pinto also said there’s reason for caution on the longer-term outlook for markets and deals.

This year “should be another positive year, but there is no cycle that goes on and on forever,” he said. “This doesn’t mean a crisis, but at some point it will end.”

— With assistance by Donal Griffin, and Jan-Henrik Foerster

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