Mega M&As are set for a strong comeback this year, sparking shareholder concerns

Mega-M&As to make a strong comeback in 2025: Big ticket mergers and acquisitions are expected to pick up in 2025 on the back of lower interest rates, bullish equity markets, and relaxed antitrust regulations, Reuters reports.

By the numbers: M&A transactions worth USD 10 bn or more accounted for a fifth of total activity over the past five years, exceeding USD 656 bn in 2024. This is a modest increase compared to 2023, but still a considerable decline from over USD 1 tn recorded in 2019.

Monetary policy enables funding big M&As: The US Fed lowered interest rates by a full percentage point since September 2024. Central banks in the EU and around the world are also following suit, making debt-funding of M&A transactions easier due to lower borrowing costs.

Antitrust regulations seem to be relaxing, too: Andrew Ferguson, Trump’s pick for the Federal Commission Trade, called for ending the “war on mergers.” Meanwhile, the EU’s competition chief Teresa Ribera told the Financial Times last September that the bloc’s rules will “evolve” to help European companies scale up and face global competition.

BUT- Poor performance is a concern for shareholders: Analysis of 60 big ticket M&As since 2020 found that three-quarters of buyers underperformed their sector benchmarks in terms of annualized shareholder returns by 7 percentage points on average. Notable failures include the 2021 merger of Discovery and Warner Media, which saw annualized return drop 30% since the last day before the merger.

Buyers in financial services and healthcare fared particularly badly, underperforming their sector benchmarks by 9 and 10 percentage points on average. Pfizer’s USD 43 bn Seagen acquisition and Royal Bank of Canada’s USD 10 bn purchase of HSBC Canada were among the flops, according to Reuters’ analysis.

MARKETS THIS MORNING-

Asian markets are up this morning ahead of Trump’s inauguration, as investors anticipate the new administration’s policies. Hang Seng (Hong Kong) rose 1.8%, while Japan’s Nikkei rose 1.2%, and Shanghai Composite rose 0.5%. Meanwhile, Wall Street futures are inching lower following a strong week for the S&P 500.

THE CLOSING BELL-

The DFM fell 0.5% last Friday on turnover of AED 445.5 mn. The index is up 1.0% YTD.

In the green: AL Salam Sudan (+14.9%), Ekttitab Holding Company (+6.6%) and Al Firdous Holdings (+5.2%).

In the red: Salik Company (-2.9%), Takaful Emarat (-2.6%) and Dubai Financial Market (-2.5%).

Over on the ADX, the index fell 0.1%. Meanwhile, Nasdaq Dubai fell 0.2%.