Yahoo Finance

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, August 3, 2022

Today's newsletter is by Brian Cheung, an anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

Dealmaking is in a slump this year, but signs of a possible market bottom could be pushing some companies to go shopping while prices are cheap.

The catalyst: a stock market that has rebounded roughly 10% from its lows in June, building optimism among investors that the worst of 2022 could be over.

And, of course, continued interest rate hikes from the Federal Reserve.

Large deals have been a key feature in the headlines over the last several weeks: Amazon's (AMZN) play for One Medical (ONEM) and JetBlue's (JBLU) fight to acquire Spirit Airlines (SAVE) serving as just two examples.

A handful of deals have emerged even as of this week.

Toronto-Dominion Bank (TD) on Tuesday announced it would be buying investment banking company Cowen. And Estée Lauder (EL) is reportedly in talks to buy fashion house Tom Ford.

“There is a sense that prices have dipped, and that there’s some value to be had particularly if you’re in the market for something that’s an important strategic acquisition,” said Marc Kushner, the head of law firm Dorsey & Whitney’s U.S. M&A practice.

Another factor: interest rates.

As the Federal Reserve lifts borrowing costs to tame inflation, companies worry that it will only cost them more to finance transactions the longer they wait. Kushner told Yahoo Finance because the Fed’s rate hikes have happened so fast, companies have been concerned about stalling deals for even a week because of volatility in rates.

“You might or might not be at the bottom of the value market, but low interest rates are already gone and it’s only going to get worse in the short-term,” Kushner said.

Still, deal volume in the first half of this year is pacing well-below the previous two years. According to data from KPMG, companies around the world inked about 24,000 deals worth a total of roughly $1.8 trillion.

This compares to more than 32,000 deals in both the first and second half of 2021, with aggregate deal values exceeding $2.6 trillion over each period.

An uncertain economic outlook clouded by inflationary pressures and a war in Ukraine have sidelined many buyers that otherwise would have been happy to deploy capital in deals.

Nonetheless, KPMG noted there is pent-up demand for dealmaking. About 80% of surveyed business leaders in the U.S. saying their appetite for deals is “as strong or stronger” than in 2021.