Matt Miller: 2021 has been a global M&A record year. Again with volume hitting more than $5 trillion through the end of last month, according to Dealogic, that's already up 15% on the previous record that was set back in 2007. Here to discuss the strong demand is Anu Aiyengar, Global Co-Head of M&A at J.P. Morgan alongside our own Bloomberg Deals reporter, Ed Hammond. Great to have both of you with us. Anu, let me start with you and ask, can this continue? The pace has been really frenetic and it hasn't been the huge deals. A lot of those have fallen through, but so many of the, I guess, medium sized deals. What's going on?
Anu Aiyengar: Yeah. As you say, Matt, this year has been the stuff that dreams are made off, if you're an M&A banker and you're dreaming of deals. And you're also right about the trend in that, while you say there's the number of large deals have not been that high, 10 plus billion deals are approximately similar to the last time high. What has been the difference is the 1 to 10 billion is significantly higher than in the past. So it's been record setting in terms of 1 to 10 billion, 27% higher than the last record, 100% higher than last year. And that has really driven the overall volumes to these historic high levels and that trend of activity being in the 1 to 10 billion, we expect that to continue.
Ed Hammond: Anu, let me just pick up on that. We obviously now coming into this very late stage of the year. It is going to be a record year, that's already put proven out. We know it's going to be amazing in all kinds of different ways, number of deals, size of deals, type of deals. Question is why? Because the environment for doing deals, it looks pretty unfavorable. You have a global pandemic, you have people not traveling. You have pretty late stage market dynamics in terms of very high prices in the public market. So why are we seeing so much activity?
Anu Aiyengar: Yeah, you're right in that if you looked at the traditional metrics, you would've expected this year to almost have no M&A activity. But on the other side, the companies have faced a need for innovation, digitization and technology capabilities, unlike anything in the past. Plus, you have an investor who is valuing growth above all else. So if you look at the past decade, what have companies been focused on? Margin, and you kind of pushed it to the level. Tax give you a bit of a benefit. And now when you want to drive growth, it has to come from fundamental growth, not share buy back, not this that, bit of that too.
And at the same time, there's a record amount of cash generation. Right now just S&P 500, about 2 trillion of cash sitting there. Private equity sitting on an enormous amount of money. Dry powder is probably another 2 trillion or so. And then you add to that a little bit of the boost that this year we got from the SPAC activity. So there was a lot of capital that was available, but the driver was much more need for innovation, technology, supply chain, strategic, investor demand for growth and fueled by cash, interest rates, as well as the ability to use currency, even though you still saw people did more cash.
Matt Miller: Well, Anu with all that cash out there, with investors bidding up GameStop and Bitcoin trading at $70,000, Shiba Inu is a thing. My mother is talking about NFTs. So my point is a lot of other things are frothy in this market. Are we seeing the same thing for prices in M&A?
Anu Aiyengar: No, I wouldn't draw that comparison because I think that's a little bit of what is happening. Some of the trends you described is more about the trends affecting maybe retail investors and the public markets. Whereas is what you are seeing in the M&A markets, is a lot more driven by private company activity. Again, first year, that more than 50% of the market has come from private companies. Public company boards being lot more strategic, growth oriented, and management teams having the need to innovate and use technology again, faster than anything that they have done in the past.
So it's been less about ephemeral things like, "Oh, the stock is up to date this much, that much." In fact, that level of volatility is actually not good for the M&A market because you're looking to price an asset, and you want a little bit more consistency. And what has been good about the equity capital markets largely this year, is while valuation levels have been high, it's not that every company has been trading high. There's been even the market has differentiated in certain sectors, technology, healthcare, energy transition, where higher growth has been more at a premium.
Ed Hammond: But just talking about that growth, look, we're in this moment right now, obviously, where the stocks are down a lot, you're seeing enormous volatility. Are CEOs, boards able to look through that and think, "If we do get to the other side of this and we have gone through a significant correction, does M&A still make sense? Is it still the preferred lever to get that growth?" Because as you say, you've done buybacks, you've done roughly what you can with tax and probably a lot of other trimming elsewhere.
Anu Aiyengar: Yeah. Volatility does not help. And our board's able to see through it, able to see through short terms of volatility. So two weeks, three weeks here or there, doesn't really matter. Even when you saw about several weeks last year of things coming down and repricing, that was not in people's sentiment and heads for a long period of time. And in general, the strategic priority and the desire to drive that has been front and foremost as it should be for good boards and less about today's stock price, and tomorrow's stock price.
Having said that, the broader market does affect psychological confidence levels. That's just a human tendency, very little corporate finance theory behind it. And this year has also benefited from, despite the broader challenges through the global pandemic and travel and all those restrictions, confidence in boardrooms and with management teams being at a high. And when many, many CEOs have talked to us about when you have a buy versus build decision, earlier on, maybe you would've said, "You know what, I'm going to take the time and build it." Or you have a new innovation. You may run a test on it before you roll it out. Now you didn't have time. You had to figure it out in weeks or maybe a month. And so you skipped some of the processes that were delaying and you went and bought the asset you needed, you integrated it quickly and tried it out immediately across your entire platform.
Matt Miller: Anu, thank you so much for spending some time with us, really appreciate your insight. Anu Aiyengar, Global Co-Head of M&A at J.P. Morgan and our own, Ed Hammond.