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Even Biden’s “Dealbreakers” couldn’t stop M&A activity in 2021

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Monday Macro
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The New York Times newsletter highlights the largest deal that fell through, a $30 billion acquisition of Willis Towers Watson by Aon, which went up in smoke after the U.S. Justice Department blocked the deal.

It also features Citadel founder Ken Griffin winning an auction for a rare original of the U.S. Constitution, with a whopping $43.2 million bid, beating out a clique of cryptocurrency traders pooling their assets.

The list also underscores Linda Khan and Gary Gensler as the dealbreakers of the year. Khan and Gensler are President Joe Biden’s nominations for the Federal Trade Commission (“FTC”) and the Securities and Exchange Commission (“SEC”), respectively. These recent appointees have taken an aggressive position on curbing corporate excess.

Khan and Gensler appear to be following European regulator Margrethe Vestage’s playbook, which holds a reputation for aggressive trust-busting.

But it seems even between the three of them, a huge amount of ink has been spilled in remaking the corporate landscape through mergers and acquisitions (M&As).

In this back and forth battle between deal makers and deal breakers, there is a clear winner.

Despite these two regulatory heads being hard at work to stymie any noncompetitive or noncompliant deals, 2021 was a record year for deals going through in the U.S. and the world.

As the worst fears of the pandemic have abated, boards have been urging their executives to open the pandemic war chests and start growing their businesses. Thanks to the Fed’s stimulus activities, with rates still at record lows, management teams have secured attractive funding to support aggressive purchases for competitors or upstream suppliers.

Meanwhile, many large conglomerates are going through their final death-throes, as the pandemic has firsthand revealed the weakest members of the business world. In the span of days, General Electric (GE), Johnson & Johnson (JNJ), and Toshiba (TOSYY) all announced the splitting of their businesses.

Finally, thanks to the special purpose acquisition company (“SPAC”) boom of 2020, where investors give their money to an investor who will take a private company public, a plethora of new investable names entered the public markets.

All of this means this was the first year in decades that more companies were taken public than were either taken private or merged with another large corporation.

As you can see in the chart below, despite the actions of Biden’s new regulators, this was a record year for M&A activity in the U.S., reaching almost $2.5 trillion. Furthermore, this past year was the second-highest for global M&A activity, valued at more than $4 trillion.

This huge M&A spree has mainly been driven in the financial, technology, health care, and real estate sectors, all key parts of the 21st-century economy.

We see this huge boom in M&A deals after the pandemic as a healthy sign of the strong recovery that has swept the U.S. and the world after the doldrums of 2020.

As we have often talked about here at Valens, both corporate and national assets are historically old and in need of replacing, as can be seen in the bottlenecked supply chain.

As management teams become more comfortable with spending on M&A deals, they will also continue to invest in their businesses through capex, kicking off a spending supercycle that will continue over the next few years.

This spending supercycle will act as a kick-starter for the economy, as companies start buying from each other in earnest. As spending goes up, it will bolster the pandemic recovery.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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