Daily Brief: Dealmaking Is On Track To Break Records In 2021, And Banks Couldn’t Be Happier

Daily Brief: Dealmaking Is On Track To Break Records In 2021, And Banks Couldn’t Be Happier

over 2 years ago3 mins

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2021 is on track to be a record-breaking year for mergers and acquisitions (M&A), after companies took advantage of their hot vax summer to really let loose.

What does this mean?

Firms have struck $4 trillion worth of deals since the start of 2021 – more than twice as many as they had done this time last year. That’s partly because historically low interest rates have made it cheaper than ever for them to borrow money, which means they can finally splurge on a buyout they’ve long had their eye on. And it’s partly because they’re enjoying record-high stock prices, meaning they don’t need to issue as many new shares – or spend as much cash – to buy what they want.

Worldwide MA

Why should I care?

For markets: Tech’s still leading the way.

The dealmaking boom has spanned every sector, with plenty of companies citing double or triple-digit percentage increases in the number of deals they’re striking versus last year. But it’s tech firms – which, not coincidentally, have seen the most significant uplift in their share prices in the last year – that have been involved in around 21% of all M&A activity this year. And analysts don’t think that’ll stop: tech firms are expected to keep leading the way over the next 12 months, as they continue to play a pivotal part in our working-from-home world.

Tech deals

The bigger picture: The real winners.

Investment banks take a cut of every deal they make happen, so it follows that banking giants JPMorgan and Goldman Sachs both reported strong revenue from their dealmaking businesses. A lot of that came from the Middle East, where governments have been looking for new ways to diversify their economies after the oil market’s slump last year. And it’s not just JPMorgan and Goldman: investment banks the world over have been so busy that they’re reportedly scrambling for new hires.

Keep reading for our next story...

European Power Prices Surged To Record Highs

Germany image

Data out on Monday showed that prices of energy have surged to record highs in Europe, but just remember: with great power comes great responsibility.

What does this mean?

The demand for energy picked up coming out of the pandemic, but providers didn’t seem to get the memo in time: there have been a variety of supply issues with natural gas, which is used to generate electricity. That’s pushed up the cost of power for the whole of Europe, with gas prices up more than 170% this year alone, and an index tracking German energy prices hitting an all-time high on Monday.

Power rally

That has to make the European Central Bank (the ECB) nervous: soaring energy prices are synonymous with inflation, which the ECB shrugged off again last week as a temporary consequence of the pandemic. If it continues, the central bank may be forced to rethink its economic support policies much sooner than expected to keep price rises in check…

Why should I care?

The bigger picture: The road to energy hell is paved with good intentions.

Germany is Europe’s biggest energy market, and it’s leading the way in the transition to greener power. Not that it’s not doing the country any favors right now, mind you: poor weather conditions have seen its renewable energy production come in well below par this year. And since the country’s planning to shut down the equivalent of nine nuclear reactors by 2023, it’s staring down the barrel of a supply shortage that’ll push prices even higher.

Zooming out: Settle in.

It looks like this spike in energy demand could be here to stay: data out Monday showed that German factory orders rose unexpectedly in July, driven by a boom in demand for exports. That increase in orders will only push energy usage higher going forward, and prices along with them.

Unexpected growth
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