Perspectives – Marc Cooper – March 2022
Despite How Quickly Things Have Changed, We Remain Hopeful
by CEO Marc S. Cooper
Most bankers went into 2022 anticipating a healthy dose of volatility. After US markets recovered as quickly and strongly as they did from the COVID-19 downturn, it was inconceivable for things to continue on such an upward trajectory, and warning signs – inflation, rising rates, supply chain, etc. – have been flashing for months. Yet while the investment banking industry was certainly bracing itself for headwinds, Russia’s catastrophic invasion of Ukraine officially marked an end to the post-COVID recovery, and the start of a new and troubling period.
Above all else, our hearts are with those suffering in Ukraine. Rising gas prices and inflation are first world problems that pale in comparison to what’s taking place there. What’s happening is heartbreaking and difficult to watch, and the most important thing is that this war comes to an end as soon and peacefully as possible.
While the war may be a world away from us, it’s very much influencing the US M&A environment. 2022 already faced headwinds and the geopolitical environment only further exacerbates those problems. M&A activity is closely tied to public markets and as a result, the dealmaking environment has cooled dramatically. Part of this is merely a break from the hyperactive fourth quarter of last year, which under normal conditions would have been hard to replicate. But IPOs are on pause for the moment, high-yield markets are at best slowing down, and SPACs are more or less non-existent. Markets are quite resilient, but if there’s one thing they have a hard time dealing with, it’s uncertainty, and war often ripples shock waves of uncertainty to even the farthest of countries.
So, where does this leave us? We anticipated a slowdown in the first half of the year and the war is only further driving that perspective. It’s hard for businesses to agree on valuations when things are trading in such an erratic fashion. Throw in anti-trust concerns and it’s no wonder the M&A space has cooled. Still, keeping a long-term perspective is as important as keeping a short-term one, and on that front, things are looking slightly more promising.
Private capital markets are flush with capital – both equity and debt – and they very much want to transact. It’s likely we’ll see a short-term pause as buyers and sellers determine what a good value is, but deals are getting done and there’s activity in the market.
The US economy has rediscovered volatility but it’s important to remember that the environment is still quite strong. Interest rates will rise, but even then, they’re likely still to be relatively low compared to historic levels.
Our main focus is on what’s taking place overseas. It’s hard to predict how that will play out, but we – along with so many – are simply hoping for the best possible outcome. In the meantime, US markets will see wild swings in both directions, but the underlying economy is strong enough to sustain itself and businesses are in a stable enough position to feel confident about their futures. Equity markets will recover and look less volatile in the coming months because their fundamentals indicate a positive future, too. While the M&A space is of course tethered to these factors, I am hopeful we’ll see positive momentum in the second half of 2022.