Little loosening in logjam for big-ticket M&A

Large M&A deals still face roadblocks on the path to recovery as July saw just one announced global transaction that topped $10 billion.

The announcement came on July 6 with GTCR LLC agreeing to pay $12.70 billion to acquire a 55% stake in WorldPay Merchant Solutions from Fidelity National Information Services Inc. The transaction brought the total announcements of global $10 billion-plus M&A deals through the first seven months of 2023 to 12, down from the 18 pending and completed deals of that size announced through the same period of 2022, which was a historically slow year for dealmaking at the time.

The slow pace of M&A was a much-discussed topic during recent investment bank earnings conference calls. During Evercore Inc.'s July earnings conference call, an analyst asked what it will take to break the M&A logjam.

"What really is required is clarity for the macro outlook, relative stability of interest rates and underpinning to the market," Evercore Chairman and CEO John Weinberg said. "And really an improving financial markets where there's more accessibility for funds."

Weinberg added that the market is showing signs of improvement with momentum in equity issuance, some firmness returning to the stock market and a growing viewpoint that interest rates are stabilizing with US monetary policy actions having been effective. "We think all the elements are in place for that recovery, and it's just now a matter of time," Weinberg said.

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Measured expectations

Other investment banking executives also expressed cautious optimism. While conditions may be in place for the start of a rebound, expectations should remain realistic, said Lazard Ltd. Chairman and CEO Kenneth Jacobs.

"Most M&A cycles, you see deal activity recover in fits and starts," Jacobs said during a July earnings conference call.

Still, Jacobs added that board and investor confidence is increasing. "The gap between buyer and seller expectations is narrowing and signs are emerging that financing while more expensive is becoming more accessible," Jacobs said.

Seller looks longer term

In July's lone $10 billion-plus deal, Fidelity National Information Services (FIS) agreed to a price that was a significant reduction to WorldPay's valuation a few years earlier. The transaction's terms — including a $1 billion contingent consideration based on returns — values the target at $18.5 billion, which is less than half of the more than $40 billion price FIS paid to purchase Worldpay Inc. in 2019.

The company decided on the sale after the evaluation process found the sale more compelling than a spinoff, which FIS had been exploring. FIS plans to retain a 45% stake in WorldPay and hopes the new majority owner — a private equity firm with experience in the payments space — can make investments that increase the valuation of the target.

"The partnership with GTCR also ensures that Worldpay will have ample access to capital to pursue near-term inorganic growth opportunities while maintaining a healthy balance sheet," FIS President and CEO Stephanie Ferris said during an August earnings call. "We're excited about the transaction and the prospect of generating meaningful returns for our shareholders."