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Dealmaking is the lifeblood of Wall Street. When companies combine, or one company buys another, it creates opportunities for investors and banks to make money by providing advice or financing for the transaction.
Last week, President Joe Biden signed a package of bills to fund the federal government, narrowly avoiding a very expensive and damaging shutdown. But analysts say that funding cuts in the plan could end up harming mergers and acquisitions on Wall Street, squashing hopes of a recovery in dealmaking.
What’s happening: It’s been a rough few years for investment bankers. Goldman Sachs (GS) reported substantial drops in revenue last year as 2023 had some of the lowest M&A activity in a decade.
Dealmaking activity has dried up as executives have contended with recession fears, interest rates and geopolitical tensions.
Thankfully, some green shoots of recovery have been emerging.
“While many of these headwinds will continue to impact decisions in 2024, and we can add upcoming elections and supply chain issues to the list, there are reasons to be optimistic for more deal making this year,” said Lucille Jones of LSEG Deals Intelligence.
A more stable economic climate, expectations of interest rate cuts by the Federal Reserve, pent up buyer demand and a red-hot US stock market have “made it easier for dealmakers to price, execute and plan their deals,” said Jones.
The bad news: Recent regulations and proposed budget cuts threaten to step on those green shoots before they’re able to flower.
Late last year, the Federal Trade Commission and Department of Justice announced 11 new guidelines for mergers in the US. These guidelines were the biggest changes to the way US regulators review M&A in 40 years, said Mitch Berlin, a vice chair at EY.
He estimated that those changes could add an additional two to three months to merger timelines.
Now, a new threat has emerged.
The spending package signed into law by Biden provides $233 million to the antitrust division for enforcement, $45 million less than what the Congressional Budget Office estimated the agency would collect in fees this year.
The 20% cut could be substantial, especially given regulators’ “ambitious agenda” for oversight, said Berlin.
“Regulatory risk remains a top headwind for 2024 — and it may have just picked up speed,” he said. “The House spending bills divert funding for the DOJ’s antitrust division, which could lead to even longer deal review timelines, especially on the heels of the new merger guidelines that put more deals under scrutiny.”
Berlin told CNN that he expects CEOs to “exercise prudence” with risk taking this year as a result.
The good news: Mergers and acquisitions worth a combined $522 billion were announced globally during the first two months of 2024, according to data from LSEG. That’s 75% more than the value recorded during the same period in 2023, which had the slowest annual start for deal making since 2009.
Nine megadeals, worth $10 billion each, were recorded in January and February. That’s equal to the all-time record set in 2018. They included huge deals such as Capital One’s $35.3 billion offer to take over Discover Financial Services and Hewlett Packard Enterprise’s $14 billion bid for Juniper Networks.
And while a budget cut could take some wind out of Wall Street’s sails, “CEOs’ confidence in the economy is on the upswing and they’re hungry for growth through M&A,” said Berlin.
Why it matters: Dealmaking isn’t just good for Wall Street. It’s good for Main Street, too.
“M&A is a powerful tool to generate economic value and transform your business,” said Berlin. “It can lead to increased shareholder returns.”
But, he warned, adding uncertainty threatens to hinder dealmaking activity. “If companies find it harder to transact to transform, we risk seeing a slowdown in economic activity and innovation and missed opportunities in the marketplace.”
Creators fear a TikTok ban as the House prepares to vote
TikTok — and some of its users — are pulling out all the stops to contest a bill that could lead to a nationwide ban of the app, reports my colleague Brian Fung.
As House lawmakers prepare to vote on the bill Wednesday, TikTok is encouraging users to call their representatives with a full-screen notification about the legislation. The company’s CEO, Shou Chew, has attempted to schedule 11th-hour meetings with members of Congress. It sent letters to two lawmakers on Monday challenging their characterizations of TikTok’s call-to-action campaign as “offensive” and “patently false.”
And TikTok claims that banning the app would harm 5 million businesses that rely on the platform.
One of those businesses belongs to Nadya Okamoto, a TikTok creator with more than 4 million followers and whose brand of menstruation products, August, is carried by national retailers including Target. (TikTok connected Okamoto with CNN.)
TikTok’s heavy emphasis on the For You page makes it far easier for brands like August to reach new audiences compared to other apps, Okamoto said. “They’re primarily looking at content from people they don’t necessarily follow already. And so, as a business, that is a very unique thing.”
Teddy Siegel, a public restroom advocate who has more than 185,000 followers on the app and roughly half a million followers across multiple platforms, says Congress is threatening to undermine her mission to document a real public health issue — the lack of available restrooms in public spaces — and to help people from around the world find relief fast.
Siegel is one of a diverse group of TikTok creators speaking out against what they see as an unreasonable restriction on their speech and economic activity, highlighting how some of the platform’s users are vocally at odds with legislation US officials say will block the risk of spying by the Chinese government.
Multiple creators say the House bill that requires TikTok to find a new owner within several months or be prohibited from US app stores creates unrealistic deadlines for the social media company that would almost certainly disrupt the organic communities they’ve built and can’t be easily replicated elsewhere.
Boeing is in big trouble
Boeing has has a pretty miserable 2024, reports my colleague David Goldman.
On Monday, it got even worse when a 787 Dreamliner plunged suddenly mid-flight, injuring dozens of passengers, after a pilot said he temporarily lost control of the aircraft.
The pilot was able to recover and land the plane safely, but it’s not yet clear what caused the LATAM flight from Australia to New Zealand to fall so dramatically. LATAM called it a “technical event.” Boeing said it’s working to gather more information. But it’s not news Boeing’s management (or the flying public) needed right now.
Shares of the stock are down nearly 30% so far this year after its seemingly nonstop streak of bad luck.
In early January, part of an Alaska Airlines 737 Max blew off the side of the plane just after takeoff. A preliminary federal investigation revealed that Boeing probably did not put the bolts in the so-called door plug that are designed to prevent the part from blowing off the plane.
In February, pilots on a United Airlines 737 Max reported that the flight controls jammed as the plane landed in Newark. The National Transportation Safety Board is investigating. Two weeks ago, the Federal Aviation Administration flagged safety issues with the de-icing equipment on 737 Max and 787 Dreamliner models that could cause engines to lose thrust. The FAA is allowing the planes to continue flying, and Boeing said the problem does not pose an immediate safety risk.
Then, last week, Boeing got more bad news: The NTSB said Boeing has not yet provided the company’s records documenting the steps taken on the assembly line for the door plug replacement on the Alaska Airlines jet. Boeing’s reason: Those records don’t actually exist.
