M&A trends and opportunities: A global perspective

Jay Hofmann: Hi, you're listening to What's the Deal? Our investment banking series here on J.P. Morgan's Making Sense. I'm your host, Jay Hofmann, head of North American M&A at J.P. Morgan. Today we'll discuss the dynamic landscape of mergers and acquisitions as we delve into our recently released Outlook Report. Joining me for today's conversation are my colleagues, Cassander Verwey, whose co-head of Europe, Middle East, and Africa M&A and Rohit Chatterji, head of Asia Pacific M&A. Welcome to the podcast, Rohit and Cassander.

Rohit Chatterji: Thank you, Jay. Excited to be here.

Cassander Verwey: Thanks for having us, Jay.

Jay Hofmann: To get us started, our regional heads will share perspectives on the key M& A trends in their regions. Rohit, could you kick things off by sharing your observations on the Asia Pacific region?

Rohit Chatterji: Sure, Jay. In APAC this year, we saw the volume surge. Now they were up 73% in the first half of this year. If you include the Chinese bank pre re-capitalizations. The volumes were driven primarily by Japan and greater China, and then also by India and Australia to an extent. Between those four regions, they accounted for 95% of all the volumes here. There were three themes that we saw play out in the first half of this year. The first was the rise in the domestic deal flow in Japan, driven by activism and the focus on corporate clarity and the value unlock that it is forcing amongst primarily the mid-caps where attractive valuations, strong technology, low founding family stakes are actually helping activists team up in some cases to build position in these businesses and then drive strategic reviews from within. And at the other end, the financial sponsors are actively participating in these processes that ensure out of those reviews. The second theme that's playing out of the inbound interest and also domestic consolidation in the Australian resources sector. This we saw was with lithium earlier and then came copper and gold and now natural gas. Australia had some of the best resource deposits in mining and oil and gas companies and natural open shareholder registers. So these sectors are consolidating globally, and now we are seeing that actively in the country as well. And then the last one was the active deal flow from financial sponsors. This one's particularly true for infrastructure where we've seen a significant amount of capital flow into data centers, telecom towers, renewables, gases, roads, et cetera. And in fact, on the traditional private equity side, the resurgent equity markets in India and Japan have delivered some very successful exit rates for the sponsors. And that in turn is driving confidence in making bigger bets.

Jay Hofmann: Insightful observation, Rohit. Thank you very much. Cassander, what about EMEA?

Cassander Verwey: So from an EMEA perspective, confidence is crucial both in the board room as well as in investment committees. So where we've seen most activity is where resilience and predictability, uh, are key cornerstones of, of assets or companies. And industries that have low tariffs and low GDP impact are, are favored in today's market environment. So the first half is really a, a tale of, of two halves, where there's a massive amount of increased uncertainty because of liberation day with continued geopolitical uncertainty. And as I said before, that played a, a key role in, in Europe, and it definitely forced a slowdown in May and April. Now, on the country level we see a number of different things happening. And if I take a couple of big blocs, Germany, Italy and Switzerland, there's a strong uptake in corporate activity, where there's transactions in energy, industrials, and FICC, and they're all driven by themes like economies of scale. The UK on the other end is down almost 20%, which, less activity and both financial sponsors and corporates. And the Nordics is flat year on year, and that is very much driven by sponsor trophy assets coming to market, and whilst corporate activity are seeing a slowdown on the back of uncertainty.  

Jay Hofmann: Yes, absolutely. If you were to look at first half activity, we ended up at, uh, $1.2 trillion of M&A volume through the end of June, which is up 15% year over year. It actually accelerated in July and August. Every cohort is up substantially. The broadest measure, which would be all deals greater than $250 million, up 9%. Mid-sized deals, which we would view as 2 billion to $10 billion of transaction value is up 22% after having been down in 2024. So that is quite a bright spot. And then the, the largest deals that we look at, greater than $10 billion in transaction value, they're up substantially too, up 19%, Strategic activity is up about 16% and financial sponsors up about 23%, which I think will come as a surprise because the narrative has been focused on the challenges some financial sponsors have had generating DPI for their investors. if you actually look at the mix this year, 65% of activity has been driven by strategics, 35% by sponsors, which is not too far out of line from historical averages. And then if you look at the sectors. We track nine different sectors, six of them are up this year. And so, again, just a very broad revival in the M&A market. This obviously signals is increasing confidence among C-suite executives, boards of directors and private equity firms about the near and medium term economic prospects. Cassander, if I throw it back over to you, how do you see economic factors affecting the M&A business in, in EMEA?

Cassander Verwey: In Europe overall, first half was also up around 15%. And exactly to your point, I think the mix was roughly the same across all the sort of different size buckets. So I would almost argue remarkably similar trends in, in the U.S. versus Europe. But if you, if you look at it from a generic perspective. As you say, some of the larger private equity funds have been quite successful in monetizing their assets. They have a license to hunt, they have a license to do deals. And I think interestingly enough, they can sort of pick the industries that they wanna do the deals in because I think there's a clear bifurcation between industries. Where in today's market environment, in Europe at least, resilience and predictability are key. And  especially the industries that have very low tariffs and GDP impact are very much favored in, in today's market environment, especially on the financial sponsor side, who have an ability to pick where they do M&A, contrary to, corporates. So if I look at the first half of this year, it's, it's, it's almost like a tale of two halves within the first half or even the first couple of months of the year where massive ramp up in terms of uncertainty because of Liberation Day, which put a real dampener on the business in, in EMEA. And without sounding too pessimistic, you know, the reality was that you saw, especially investment committees that are saying, look, let's, let's just wait, uh, uh, before we, before we do anything when it comes to an exit or when it comes to making an investment. General feeling within the, within the corporate boardrooms was one of sort of, you know, hitting the brakes. I think we've seen that change over the last two to three months, where there's a definite pickup, uh, in activity, there's a lot of positive momentum. It's very clear that, that both corporates and sponsors want to do deals. The level of discussion and the level of mandates, the level of pitching activity is actually very high, higher than it used to be. And I think sponsors have been ... in Europe, have been sort of quite at the forefront, or at least have been more forward leaning over the last couple of months relative to, for example, corporates, where sponsor activity has sort of increased a, a bit more, and is now in Europe around 35% of total activity, which I think is very similar to what you just said around the US. Which is above historic numbers, especially over the last couple of years, where [inaudible 00:11:56] have been quite sort of, uh, anemic.

Jay Hofmann: Got it. Thanks, Cassander. That's, that's very interesting. In the US, tariffs have definitely dominated the headlines for the last six months, and there was obviously a violent reaction in the capital markets and among key business decision makers, uh, to the uncertainty and the potential downside that popped up on April 2nd. It seems we've reached what I would call a tolerable level of discomfort, uh, based on three factors. One is that, uh, perspectives on the reasonable worst-case outcome from tariffs have improved. The second thing is really companies have done a great job of scenario planning, to figure out how to reduce risk and impact. And then the last thing is that they've realized that they can't just wait out the tariffs outcome, and still need to act in the face of uncertainty. So that's over shadowed other economic variables. But when I think about them, generally speaking, they've been accommodating. So if you think about, first, fiscal policy and taxes, that's overall been a positive for businesses. The second would be that rates are at least stable. We may not get significant rate reductions in the U.S. for the next 12 months, but they're at least stable. And GDP growth and employment, I would say they're not optimal, but they're acceptable at the levels there are right now. And so this combination has given business decision-makers sufficient confidence to make strategic moves. Rohit, what are you seeing in Asia?

Rohit Chatterji: Well, the tariffs have definitely had an impact on our deal flow. For instance, if we were working on inbound M&A into a manufacturing company in this part of the world, many of those have gone on pause. Now the buyers try and figure out where the ball goes next. There's also been a slowdown, um, out of Japan into the US, not withstanding the Nippon Steel, U.S. Steel transaction. 'Cause the macroeconomic uncertainties have caused the valuations for some of these businesses to need more work, and the environment to become a little bit more stable before some of these acquirers move forward. So we've seen that pause. On the other hand, one of the key drags on deal flow in the region historically for the last few years, had been the weak domestic sentiment in China. That, on the other hand, is in fact strengthening, and we are starting to see investors get confidence in looking at transactions in China today. The other thing that's held up very nicely across the region is the strength in the capital markets. In fact, we've seen very supportive equity market for raising capital to finance M&A transactions in places like India, Japan, Australia. I think that's been a boost to the sentiment overall, for the companies looking at acquisitions. Now, where do I think this goes? The fact that corporate Japan now has to go look for growth in other markets, particularly in areas like financial institutions, healthcare, industrials, and resources. That appetite still exists, and it will come back into the market as now the situations stabilize. We are starting to see some of those conversations pick back up again.

Jay Hofmann: So Rohit, are there sector specific trends that you're seeing that cut across industries? How would both of you think about that?

Rohit Chatterji: So in resources, we are seeing portfolio optimization and consolidation across the region more broadly. The picture in industrials is a little bit more complicated. For instance, there is, in many sub sectors within industrials, excess capacity in Asia more generally. And the tariffs on top of it are changing the maths around profitability. And that's gonna need to drive consolidation of capacity in certain sectors. Companies are, in some cases, also looking for new vectors of growth. On the other hand, if you're an industrial or a pharma company in India, buoyed by the surging valuation in the domestic markets, you're now looking for opportunities to position yourself, or benefit from or mitigate the impact of tariffs. So I'm expecting more cross-border interest coming out of those markets, where the potential global players are gonna look at their own surging valuations as a basis for stepping up and looking at transactions elsewhere.

Jay Hofmann: So Cassander, what are you seeing in Europe?

Cassander Verwey: Look, I think big picture, comes back to some of the themes I mentioned earlier. Some of the more stable industries that have less GDP and tariff impact, I think, are clearly favored in today's market environment in, in EMEA. I don't think we have a similar situation as you sketched out in the US, where there is a sufficient range of narrowing, I would say, of the outcomes and where GDP is sufficient, as I think you called it. I think a lot of these European companies, they are global companies, , they tend to have a whole range of impacts that they see. And therefore I would argue that some of the range of outcomes that they see in their own business are, are a bit wider. So where you see most activity is in, is in healthcare, uh, in infrastructure, in business services, in technology. Another one is of course always DI, as I said earlier, especially on the corporate side where, where a lot of consolidation is necessary, given the environment that we're in, around the economies of scale and cost reduction and efficiencies. And especially also with, with technology playing a more dominant part in those companies, where you see  more and more non-tech companies buying tech companies because of AI, industrial technology playing a role in their normal business models, and those business models are changing. And, and another one is, for example, consumer retail, where we've seen quite a pickup in activity, again also, driven by economies of scale.

Jay Hofmann: Yeah. The sector story in North America is more straightforward. If you look at the last 10 years, the three biggest sectors consistently have been tech, healthcare, and diversified industrials. If we're to look at the first six months of this year, tech and diversified industrials continue to dominate. They're the two largest sectors. Tech is 25% of total volume and diversified industrials, 23%. And they've been the, the drivers of the major increases in activity over 2024. So tech's actually up 42% and diversified industrials, a walloping 68%. What's interesting is healthcare has actually been weaker. It's down 14% year over year, and only 11% of the total. The other sectors consistently are single digit percentages of M&A activity and that, that continues to be true this year. I'd say energy's down. So is real estate, not surprising considering that the real estate sector always has more challenges in a high interest rate environment? And if you look at the other ones, I would say they're up, some a little bit and some meaningfully.

Cassander Verwey: And Jay, if you think through the geopolitical landscape more broadly, how is it affecting sort of cross-border transactions in, in North America?

Jay Hofmann: I think there's been a bit of a disconnect between what you might read in the press over the past six to eight months, and what actual activity has been. You know, there was obviously a story at the beginning of the year about American exceptionalism which got tarnished quite a bit by the Liberation Day announcements. And then there was a sentiment that the United States probably would not be a target for substantial cross-border activity. If you look at the actual numbers though, it's surprising. There's been net investment into North America. Total cross border acquisitions from EMEA into North America in the first half were $77 billion, which was net 21 billion over the outflows from the US. And surprisingly, same thing for APAC, it was net 29 billion where investment into North America was 68 billion, and the outflow was was 39 billion. So I, I think the more volatile geopolitical dynamics have been offset by the fact that North America continues to be a fundamentally attractive market.

Rohit Chatterji: Yeah. In fact, we are seeing that interest in North America be the dominant driver of cross-border, even in this part of the world. If you look at the volumes in Japan, half of those volumes are outbound, and a large part of it is headed towards the US. The rest of Asia, this year so far, only 20, 25% has been cross-border, so we've seen a lot of domestic consolidation in sectors. But we do expect that the cross-border interest will pick up coming into the second half of the year. From Japan, one of the primary drivers of that volume was the interest that SoftBank has as an investor in tech and AI across opportunities in the US. There's some really big appetite there. We also see inbound into the region, interest from Middle East and sovereign wealth funds start to grow. China, India, and now increasingly Japan are markets that they want to look for opportunities in. We are also starting to see outbound interest from China and resources and industries that have been quite now for quite a few years start to resume. So interesting times where we'll see how it goes.

Jay Hofmann: Okay. Got it, Rohit, that's fascinating. Cassander, what's your point of view on EMEA?

Cassander Verwey: Look, I think some of these stats are interesting, right. I think that what you just said,  Jay, that a European companies are, I would say a net buyer of U.S. businesses. I, I think it's an interesting sort of concept and we've seen more and more European companies look towards the US, for example. That is driven, I think by, by a couple of factors. Number one, in Europe, GDP growth is relatively anemic. And the reality is, to your point, the ease of doing business in the U.S. is a clear benefit of being in that market. So if we look at the discussions that we're having with our European clients, especially some of the larger ones who are not present in the U.S. or not present in sufficient scale in the US, features very high on that list, for that reason. I think the other one is, is a trend towards buying capabilities. And I mentioned it earlier, right? As you said, a large chunk of the U.S. deals are tech deals and of course European companies are very much looking towards the U.S. from a technology and capability perspective. So I think some of those transactions we've seen as well, where some of the larger European companies who are global, you know, want to buy, uh, either a, you know, foothold in the U.S. or strengthen their presence in the U.S. given the strength of that, of that market. So, it doesn't surprise me that that's the case.

Jay Hofmann: So before we close out today's conversation, I think we should address how we're all thinking about the next 12 months in our various regions and where we see the opportunities and the potential headwinds in M&A activity. Rohit, what are your thoughts?

Rohit Chatterji: In the remainder of this year, we expect more corporates in Japan to take their subsidiaries or affiliates private they deemed them core. Or else to consider a separation or review different strategies. 'Cause activism is there to stay and the bigger companies are starting to think about whether they should take these subsidiaries private and create a full alignment of ownership there. The second is the reorganization of global supply chains. I think we are still in the early phases of that thought process. And thirdly, I think it would also be  an unlocking of capital from some of the multinational assets that are held in Asia, particularly in jurisdictions where the surging valuations make optimal for some of them to take capital off the table while still retaining control and consolidation of their subsidiaries here. I expect the investments into the U.S. to pick up. We've talked about how attractive a market that is, and I think for a number of reasons, once the macroeconomic environment settles down, it will, at least from outbound, from China, from Japan, again become a favorite destination. Not just for SoftBank, but also for all of the Japanese financial institutions.

Jay Hofmann: Cassander, what about EMEA?

Cassander Verwey: I think we see quite a lot of positive momentum. If we look at sort of the number of 1 billion plus transactions being announced or being considered by our clients, if we look at the pipeline of transactions, I think that all of that is really building towards a very positive momentum. We see significant structural pent-up demand for M&A, being it the need for economies of scale, being it the need to buy capabilities. On the sponsor side there's a significant need to deploy vast amounts of capital, which have been raised over the last few years, and, and exits have been quite anemic in Europe. So the need to show DPI is also, is also clearly there. So key fundamental drivers are there. And arguably the pressure to do M&As keeps building. So yeah, quite positive for the next 12 to 18 months.

Jay Hofmann: Your description of the psychology of buyers and sellers right now and the structural dynamics in Europe, actually very similar to what we're seeing here in the United States. We may be a little bit further along in the confidence building, uh, but the dynamics are very similar. And so right now I am bullish on the potential for M&A activity for the rest of '25 and '26. So that brings us to the end of today's episode. Uh, I'd like to extend a big thank you to Rohit and Cassander for sharing their valuable insights and expertise, and to our listeners for tuning into another episode of What's the Deal. We hope you found this conversation insightful, uh, and please be sure to tune in to our upcoming episodes as we stay up to speed with the markets. I'm your host, Jay Hofmann. Until the next time, goodbye.

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