Janice R. Andrews
An unprecedented number of agreements targeted at financing mergers and acquisitions (M&A) are being witnessed by bond markets, which is a strong indication that the corporate landscape is revitalizing. This spike in the market for corporate bonds represents a substantial departure from the cautious approach taken over the course of the previous year.
Bonds totaling almost $50 billion have been issued in the last two weeks alone to support acquisitions and spinoffs, demonstrating investors’ strong desire for M&A funding. Well-known companies like AbbVie Inc., Bristol Myers Squibb Co., and Cisco Systems Inc. have taken advantage of this development and have helped to propel M&A financing activity to an astounding level after a quiet time for dealmaking.
Arvind Narayanan, co-head of Vanguard Group’s investment-grade credit, believes that this tendency will only get stronger. Right now, investors are looking for new, high-yielding debt instruments to purchase before possible interest rate increases take effect, which is driving a lot of activity in the corporate debt market. Finance executives are being prompted by this dynamic to take advantage of the current favorable conditions and raise cash for strategic projects like mergers and acquisitions.
According to Narayanan, “We do believe that M&A will continue… It is going to take center stage.” This opinion is supported by data collated by Bloomberg, which shows that the U.S. investment-grade debt market has an astounding $276 billion worth of pending M&A projects scheduled for funding this year. Notable deals among them, such as Broadcom Inc.’s purchase of VMware Inc., stand out and might spur further issuance in the upcoming months.
The rebound in takeover activity isn’t limited to the American market; it’s having an impact on other international financial spheres as well. Strong demand from a wide range of investors is creating a knock-on impact for the European debt markets and the leveraged loan industries in the United States. Interestingly, borrowing prices have been declining since October, even if they are still higher than historical lows. This has encouraged companies to seek out M&A funding even more.
According to Meghan Graper, global co-head of debt capital markets at Barclays Plc, “the ability to lock in historically low spreads and to appeal to investors who are more motivated by yield… is a perfect storm to compel borrowers to step in and take advantage of the backdrop” highlights the convergence of factors driving this trend.
The tremendous demand seen in recent bond offerings is one of the distinguishing features of this revitalized zeal. By taking advantage of the need for bonds held by pension funds and individual investors, corporations are able to get funding at rates that are similar to those of their current debt commitments. AbbVie’s $80 billion in investor orders and Bristol Myers’ successful offering, which drew more than $85 billion in demand, serve as examples of this incredible achievement.
In addition, firms are now able to sell bonds at yields that are nearly identical to those of their outstanding notes due to the current state of the market, which is different from the traditional practice of having to make significant concessions in order to attract investors. Not only are conventional corporate giants experiencing more activity, but junk-debt market companies are also seeing a rebound in financings for leveraged buyouts, which suggests a wider stability of the market.
A rush of activity and innovation is taking place in the financial environment as confidence permeates credit markets globally. Financial institutions are deploying resources to take advantage of the growing demand for M&A financing from Europe to the U.S. The setting is set for a dynamic era of corporate dealmaking and wealth creation, with strong investor demand, advantageous financing circumstances, and a positive economic environment.
