Companies worldwide are pursuing bigger deals in the second half of this year as executives get increasingly comfortable with volatile markets and unpredictable world politics, dealmakers at JPMorgan Chase (JPM.N) forecast.
“There was a sentiment shift from waiting for certainty to dealing with uncertainty, because you can’t just keep waiting," Anu Aiyengar, JPMorgan's global head of advisory, mergers and acquisitions, said in an interview to discuss the bank's mid-year M&A outlook report.
“Boards are encouraging management teams to think big, think bold and act as opposed to waiting for certainty," she said.
Between volatile markets and multiple wars, C-suites are looking for truly transformative deals, mega deals generally worth $10 billion or more, to help secure supply chains and bolster technology in an unsure world.
Cross-border activity has persisted despite increased regulatory risks, JPMorgan's investment bankers wrote. That is because the need for scale has become crucially important, especially for large multinational corporations that face heightened political protectionism on multiple continents, volatile markets and swift and dramatic changes in technological needs, they said.
Keeping up with the latest AI innovations is expensive and growing fast and will drive a lot of dealmaking in the second half of this year. The artificial intelligence market is expected to grow to $1.8 trillion by 2030 from $60 billion in 2022, the bank estimates.
The number of American businesses that buy AI tools today stands at 40%, double the market from last year. Tech companies are expected to spend $1 trillion on data centers alone over the next five years.
The market is rewarding deals that deliver scale, Aiyengar said. A $500 million deal is just not large enough to have a big impact on solving operational problems or improving shareholder value, she added.
“Because the problems you need to solve are big, dipping your toe into it doesn't work. You need to do something meaningful," Aiyengar said.
The hottest sectors for the rest of the year, she said, are tech, industrials and energy. Deal activity in Asia almost doubled in the first half of the year from the same time last year, and that does not show any signs of slowing down for the rest of the year, JPMorgan said.
But the hottest and probably most expensive market in the world to buy into right now is America, Aiyengar said.
“The market here is bigger. The consumer here is more resilient. The ability of companies to react to things is faster. Generally, agility and nimbleness are higher, and for those reasons, in a volatile environment, this becomes an even more attractive market," she said.
