A $3.2 Trillion Deal-Making Frenzy Is Spurred by the A.I. Economy
"This year’s boom includes the most spent on global deal-making in a six-month period in a decade. But questions persist about whether it can continue.
An ebullient stock market, huge bets on artificial intelligence and an open regulatory environment have fueled one of the biggest six-month booms in deal-making in years.
Through the end of June, there were about $3.2 trillion in global deals, a 45 percent jump from a year earlier, according to Dealogic, a data provider. That was the most spent on deal-making over a half-year period in at least a decade.
The frenzy heavily favored large companies, with 44 deals announced that were larger than $10 billion, including takeovers and large-scale fund-raising in the private markets. Those blockbusters pushed the overall value of deals higher even though the total number of transactions fell about 1 percent from last year, as companies with less financial firepower or those more vulnerable to geopolitical uncertainties stayed on sidelines.
Executives of many large companies, however, have brushed aside the uncertainties posed by tariffs and the war in the Middle East to pursue takeovers that are more likely to be approved by regulators under the Trump administration than they were during previous administrations.
Many companies “perceive they have a window in which to attempt to affect something transformational, and now is really the time to try to do it,” Matt McClure, a global co-head of investment banking at Goldman Sachs, said in an interview.
Bankers insist this time is different from previous booms, like the record-low-interest era of the Covid-19 pandemic, the leveraged buyouts of 2007 and the dot-com bubble in the 1990s.
The companies driving this year’s deal-making surge are among the world’s largest and best funded, and many of them are aiming to transform their business by doing big mergers, rather than making smaller acquisitions.
Some of this activity is propelled by a need to simply keep pace in an economy dominated by only a handful of giant corporations. Consider that companies need to be about twice as large to enter the S&P 500 as they did five years ago. Exxon Mobil, once the most valuable company in the United States, is about one-eighth the size of the largest of the so-called Magnificent Seven technology companies.
“The definition of scale keeps moving, so companies need to be bigger and bigger, and big companies need to do bigger and bigger deals to have an impact,” said Ben Wilson, a co-head of North America mergers and acquisitions at J.P. Morgan.
NextEra’s $118 billion deal for Dominion Energy, which was announced in May, would create a utility giant aimed at supplying the increasing amounts of electricity needed to power artificial intelligence. SpaceX’s $60 billion acquisition last month of Cursor, a start-up that makes code-writing software, is aimed at helping Elon Musk’s rocket company build its A.I. models.
Typically, companies are reluctant to take on big deals in times of turmoil. Disruptions to oil supplies because of the war with Iran and the White House’s open hostility toward America’s biggest trading partners in Europe show no signs of abating. Questions also persist around the A.I. build-out, such as the costs for computer chips, supply constraints and potential delays on when these A.I. companies might reap profits.
“What makes the current boom a little counterintuitive is it appears to be associated with maybe not unprecedented, but top-quartile-level uncertainty and volatility,’’ said Jonathan Knee, a Columbia Business School professor and senior adviser at the investment bank Evercore.
The deal activity has been a boon for banks, too, with details likely to emerge when they announce earnings next week. Bank of America expects its investment banking revenue in the latest quarter to be up 28 percent from a year earlier, while JPMorgan Chase expects a 10 percent increase, according to a research note from Jefferies.
Not every company has joined the party. In all, 21,727 deals were announced this year, down slightly from 21,997 at the same point last year. Some of that decline can be attributed to the challenges facing private equity. Companies owned by private equity firms made up 24 percent of the overall deal value, according to Dealogic, down from about 34 percent in 2024 through 2025. Many of these firms are grappling with the uncertain values of the software companies they acquired before A.I. posed a threat to them, making them difficult to sell.
“So far this year, it’s just not been quite at the pace the market originally anticipated,” Mr. McClure said.
Initial public offerings during the first half of the year were dominated by larger companies bent on powering the race for A.I. and those in defense technology.
Madison Air Solutions, a cooling company that serves data centers, raised $2.23 billion in an I.P.O., and Cerebras, a Silicon Valley maker of A.I. chips, raised $5.55 billion. And, of course, SpaceX raised more than $75 billion, in the largest-ever initial public offering.
These offerings helped boost the value of I.P.O.s in the United States to $155 billion, the most since 2021, when a flurry of so-called blank check vehicles stampeded into public markets.
Bankers say the door for other offerings related to A.I. remain open. SK Hynix, a South Korean memory chip maker, is set to raise $28 billion in a U.S. listing this week.
But the first weeks of trading for SpaceX shares have been volatile. While still above its I.P.O. price of $135 a share, SpaceX’s stock on Wednesday dipped below $150, where it opened in the frenzied first minutes of trading when it hit the market last month. It closed at $148 a share on Wednesday.
Other recent debutantes have seen their shares fall below their I.P.O. prices. They include Cerebras, as well as Fervo Energy and X-Energy, both of which aim to power data centers. About a third of companies that went public in the second quarter are below their I.P.O. price, according to data from Renaissance Capital, a research and advisory firm. Matt Kennedy, a senior strategist at Renaissance Capital, said those results were largely in line with how I.P.O.s had performed historically in their early months of trading.
“There are a number of examples of I.P.O.s generating a lot of initial hype, then fizzling out,” Mr. Kennedy said. “At the same time, other speculative bets are holding up.”
Questions about whether demand will ultimately justify enormous spending on A.I. continue to swirl over the markets, along with other uncertainties like the war in the Middle East and inflation. Shares of the Magnificent Seven helped lead the S&P 500through its best second quarter in six years, even as shares of those companies fell roughly 9 percent in June.
Still, Mr. Kennedy said, “I do think the A.I. theme will continue to drive activity through the end of the year.”
Lauren Hirsch is a Times reporter who covers deals and dealmakers in Wall Street and Washington."
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.