Daily Brief: Dealmaking Broke Records In 2021, And Investment Banks Are Rubbing Their Hands In Glee

Daily Brief: Dealmaking Broke Records In 2021, And Investment Banks Are Rubbing Their Hands In Glee

about 2 years ago3 mins

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Data out this week showed global mergers and acquisitions (M&A) hit a record high of more than $5 trillion this year as companies couldn’t help but scratch that dealmaking itch.

What does this mean?

You don’t have to dig through too many crates to find reasons for the boom. Super low interest rates have made borrowing cash to buy rivals cheap while sky-high stock prices have made raising funds much easier. Mix that with a robust post-Covid bounceback in consumer demand – and, in turn, profits – and you can see why companies were keen to find new ways to one-up the competition.

Armed with the almighty dollar, American firms have led the way this year. The value of US deals nearly doubled compared to 2020, while Europe and Asia Pacific saw rises of 47% and 37%, respectively. Overall, the value of global M&A is already 63% higher than 2020’s total and 16% higher than the previous record set back in 2015.

Deal volume

Why should I care?

For markets: Break the bank.

Fees for advising on M&A are one of the biggest ways investment banks make money, so this year’s boom will have suited them just fine. And since they tend to pass that cash onto investors through dividends and buybacks, it’s no surprise that shares of top banks Goldman Sachs and Morgan Stanley are up more than 45% this year, almost double the wider market.

Banks break records

Zooming out: Break the internet.

More fees for Wall Streets’ finest are on the way: Triller, a short video platform that rivals TikTok, announced this week it’ll join the stock market by merging with video software firm SeaChange. Setting its own record for most buzzwords in a press release, Triller says the deal will help the combined $5 billion company expand into the metaverse, web3, and the creator economy.

Keep reading for our next story...

Tencent Announced It’s Giving $16 Billion Worth Of JD.com Stock To Its Shareholders

Tencent image

On Thursday, Chinese internet giant Tencent announced plans to slash its ownership in ecommerce titan JD.com by giving $16 billion worth of shares in the company to its own investors.

What does this mean?

Over the last decade, Tencent’s bought up stakes in a slew of Chinese tech startups that have since “gone public”, helping it build a portfolio worth $190 billion at the end of September – and representing about a third of the company’s market value.

Tencent stakes

But Tencent’s found itself in the Chinese government’s crosshairs lately: that might be because, as one of JD.com’s biggest shareholders, it’s given the ecommerce firm access to its leading chat and commerce app WeChat that’s used by most Chinese shoppers. And by simultaneously blocking JD.com’s rival Alibaba’s links to services from the platform, Tencent could be acting unfairly. By giving $16 billion worth of JD.com stock to its shareholders and thereby reducing its ownership from 17% to around 2%, Tencent will hope to keep regulators at bay and avoid any further damage to its reputation or share price.

Stock performance
Source: The Wall Street Journal, FactSet

Why should I care?

For markets: Tencent’s other investments could be at risk.

JD.com’s stock fell 7% on Thursday, perhaps because investors anticipated some of the Tencent investors set to receive new shares might quickly ditch them, creating downward pressure on the stock – or over the fact that JD.com’s WeChat advantage will disappear. Investors also appeared to worry that some of Tencent’s other big investments might also soon be sold off and sent stocks of both Pinduoduo and short video app Kuaishou down.

Zooming out: China likes giants, as long as they’re rare.

While Tencent’s slimming down, the Chinese government gave three “rare earth” producers the green light to fatten up by merging. The combined company will control 70% of China’s rare earth production, which is important in making everything from smartphones to electric vehicles. The US should take note given the country’s reportedly a decade away from not having to rely on importing rare earths.

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