M&A Activity Stays Cool as Interest Rates Remain High

Merger and acquisitions (M&A) activity remained slow during the second quarter of the year.

The reason? The Federal Reserve has kept interest rates high, making it tougher to finance deals. That’s according to a report Sunday (Aug. 25) by Seeking Alpha, citing data from S&P Global Market Intelligence.

The number of M&A deals has been below 10,000 for three of the last four quarters. During the second quarter, that number came to 9,719, the report said, an increase from the first quarter but down from 10,784 in the second quarter of last year.

Transaction values were down as well, from $621.1 billion in the first quarter of the year to $600 billion, but up from $593.1 billion last year at this time. The total value of global M&A deals for the first half of the year increased 12% to $1.22 trillion from a year ago.

“The quarterly total value is still far below 2021 levels, when the total surpassed the $1 trillion mark each quarter, but the year-over-year rise in 2024 shows that dealmakers are more willing to execute large transactions,” the S&P report said.

The Seeking Alpha piece noted that the amount of deal-making activity is critical for investment banks, which earn fees for helping companies with sales and acquisitions and for underwriting equity and debt to fund these deals.

It’s not just big investment banks taking notice of this landscape. Last week saw a report that regional banks in the U.S. were seeking M&A to bolster their balance sheets and enhance their competitiveness in the face of challenges posed by elevated interest rates, rising competition for deposits, and losses from commercial real estate.

Regional lenders with assets from $10 billion to $100 billion have conducted 38 deals this year, surpassing the 29 deals from the same period last year, Reuters reported, citing data from Dealogic. 

In other interest rate news, PYMNTS wrote last week that the higher cost of debt, “perhaps needlessly too high, dented the nation’s pocketbook overall.”

Each quarter-point of interest rates, that report noted, ends up making the cost of borrowing more expensive, to the tune of billions of dollars. 

“Low” earners, that report added, have exhausted much of their spending power, with 79% of the available limits used up. In addition, they have roughly $5,600 in savings, versus as much as $16,000 for individuals and households who make more than $100,000 a year.