(MENAFN- Gulf Times) The plunge in global equity markets is casting a shadow on what began as the hottest start to a year for deals since 2000.
The next few weeks could determine whether dealmakers get the boom year they were betting on after record stock markets fuelled $265bn in takeovers in January and companies raised $8bn in US IPOs the most in at least two decades.
With benchmark US stock indexes sliding more than 10% from the records set last month, and the selloff spreading to Asia and Europe in volatile trading, chief executive officers and their advisers are holding their breath as they wait for markets to settle.
Boards are anxiously waiting to gauge the extent of the correction as well as the strength of full-year earnings before deciding whether to pull the trigger on large acquisitions.
Markets aren't making it easy for them to make up their minds. After the Standard & Poor's 500 Index clocked its biggest one-day drop in six and half years to start the week, Tuesday saw wild swings that clawed back about half of the losses. The gain was erased and then some on Thursday, when the index slid another 3.8% and slipped back to November levels. While stocks slumped on Friday in China and Japan, losses were limited in Europe and the US market opened higher.
'If we have a week of days like Monday, deals will get pushed back, said Richard Cormack, co-head of equity capital markets for Europe, the Middle East and Africa at Goldman Sachs Group.
'But to make a decision based on a couple of days' share price reaction will be knee jerk. Making any calls on deals this week is like watching a snowflake on the first of December and concluding we will be snowed in by Christmas.
In volatile markets past, companies planning initial public offerings which favour buoyant, stable markets to bolster early performance have been the first to falter.
One adviser working on the potential initial public offering of Saudi Arabian Oil Co, known as Aramco, said the market rout was making them nervous, and could add to the potential hurdles already facing what could be the biggest-ever listing.
While no IPOs slated for major exchanges have yet been pulled, Argentine biotech firm Bioceres and Houston-based oil and gas pipeline maker Ipsco Tubulars said on Thursday they would delay their listings, citing volatile markets that sapped demand for shares.
Market observers in Europe will be carefully watching two big IPOs already on the slate: Siemens plans to begin the share sale of its healthcare unit as early as this month, people familiar with the matter said in January, which could value the Healthineers division at as much as €40bn ($49bn).
Deutsche Bank is looking to list its asset management unit as soon as possible, it said last week.
In the US, Dell Technologies confirmed this month that it's weighing options, including an IPO or a combination with VMware.
File-sharing company Dropbox has filed confidentially for an IPO and is aiming to list in the first half of the year while Spotify, owner of the world's largest paid music service, plans to execute its unconventional direct listing in the first quarter.
A drop in stock markets 'will always have a short-term impact on IPOs that are about to be priced, said Graeme Sloan, head of corporate at Morrison & Foerster's London office. However, he said, 'it is not a systemic issue that would stop the IPO aspirations of companies that should be on the public markets.
To be sure, some bankers are welcoming the correction, after years where valuations grew and many companies were seen as overpriced. In biotechnology, where prices have been especially inflated, healthcare bankers are embracing the shift, according to several advisers who asked not to be identified discussing private information.
While lower valuations could make sellers more reluctant, they're an incentive to big pharmaceutical companies that can be more aggressive and opportunistic when hunting for deals, the advisers said.
On the flip side, companies paying for acquisitions using shares have seen the value of their currency drop. Walt Disney Co's $52.4bn deal to buy much of 21st Century Fox, for example, will be paid for entirely in stock. Since the deal was announced in December, Disney's shares have fallen more than 8%, clocking almost all of that loss since the market started wobbling on February 2.
Broadcom's $121bn offer for Qualcomm, meanwhile, is a mix of cash-and-shares. Though Qualcomm has so far rejected what would be the biggest tech deal ever, it signalled on Thursday it was open to meeting with its suitor to address the offer, including 'serious deficiencies in value and certainty in its proposal. Neither company has escaped this week's rout.
In Europe, Spanish toll-road operator Abertis Infraestructuras is the subject of a takeover battle between Real Madrid chairman Florentino Perez's construction company, Hochtief, which offered €18.6bn in cash-and-stock, and the Benetton family's Atlantia.
What began with rising bond yields has become a selloff across global equity markets, as investors fret the return of inflation and higher rates that could erode profitability for companies already trading at elevated valuations. Still, dealmakers aren't panicking, yet.
'The recent volatility is just a really good reminder for all of us to avoid complacency in today's environment, private equity firm Carlyle Group's co-CEO Kewsong Lee said last week. 'The credit markets are often a leading predictor of difficult times to come, and at least as of right now, that's not what we're seeing, he said.
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