Merger and acquisition (M&A) activity has fallen to a decade low. Jon Levin, UBS Investment Bank global head of consumer, retail, and healthcare, joins Asking for a Trend to discuss what to expect from M&A activity amid economic uncertainty.
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So let's start there, John. Just big picture, I'm curious what you're seeing in the M&A environment now, John, how compares what you were seeing six months ago and 12 months ago, especially, John, as Julie was just talking about there with all the uncertainty, how that's impacting deal making?
Uh, happy to, happy to answer that. I mean, I definitely agree with some of the points that were made there. I think at the start of the year, for example, there was a lot of expectation on significant increase in M&A activity. One of the things that we track, as mentioned is number of deals, not just deal value in terms of the amounts there. But the Americas, if you look at that business today, it's about down 25% from year to date 2024 levels. And when you really take it apart and it might get some of the points she mentioned about what we're seeing of tariff and uncertainty, if you look, for example, at consumer, consumer is down about 40% in the Americas. And what that is is about some of the uncertainties about tariffs here. I would say though, a lot of this in my view is some of it's push out. It's getting pushed, right? When people can in the near term get a good grasp of what the financials could be because some of these policy uncertainties, the strategic logic and imperative to do deals is still there. I would expect to see a resurgence once we get more clarity in terms of the outlook of some of these policy changes.
And where, to the extent that we see resurgence, John, where would you expect to see that activity, which sectors?
Uh, so within some of the stuff where we spend a lot of time, for example, you look at some of these sectors where the pace of technology has made things even more competitive. The need for scale has been an important driver of consolidation. Some of the ones where we spent a lot of time in food retail, supermarkets, for example. You've got the likes of Walmart and Amazon continuing to grow, continuing to invest, and that we would expect areas like that to see consolidation. You have seen other areas which are more domestic focused, whether that's on the food manufacturer side. We would expect some of the large food companies to look for avenues for growth and buying businesses. Uh, in terms of other areas, you'll see that again within healthcare. Again, different trends that we're seeing, the need to invest in technologies and advancements there, we're expecting to see some of that continue and to resurge. I just think overall with the heightened level of uncertainty we've seen at the start of the year, there's plenty of examples that we're aware of. We track our backlog rigorously where transactions are actually getting pushed out intentionally because of some of this uncertainty is resolved.
What if John rates stay at current levels? That means what for deal making?
I think if rates stay at current levels, again, it gets to the idea of that there's less uncertainty, less volatility out there. So I'm not as much a rates, it's current levels as long as it remains there, it will give people an ability to forecast and know what their borrowing costs are. Um, and so from that standpoint, I don't think that uh rates staying where they are is going to materially impact uh or not deal activity. It's more the uncertainty.
Who would be doing the the deals though? Who's going to be doing the buying in 2025, John? Is it private equity? Is it corporates?
I'm glad you brought up private equity. It's uh it's an interesting one. We spend a tremendous amount of time in our practice as a lot of private equity clients. Um, private equity, I think when we think about it, and you guys have spoken about this over time uh on the air has a tremendous amount of portfolio companies that are still sitting there owned by them. And everybody has been talking a lot about the pace at which those are going to be monetized. Quite frankly, there's a question on the valuations at which those are marked in their portfolios. We're seeing more and more deals get talked about about using hybrid solutions. So what is that? A preferred, something that's not just buying the common equity, because I still think in many instances we have a bid ask spread within some of the private equity owned assets. So, so a couple of ways to answer your question. One, I do think there'll be monetizations within private equities, they need to return capital to LPs that might be less than normal. I'm selling 100%. Two, I think the private equity community continues to want to put a tremendous amount of capital to work, uh, and they're looking for those bespoke deals. What we're seeing is much more proprietary deals uh and things like that start versus broad processes given the uncertainty. So, uh I do believe that you'll see private equity activity, especially pick up in the second half, but as well as a lot of the strategics. I think it's top of mind for boards still. While we're facing near-term volatility and uncertainty, um, a lot of boards are thinking about M&A strategically, uh, and what they should be doing in this competitive environment.
What what does, John, the departure of Lina Khan mean? Do you think is is it easier to get deals done?
It's a great question. Uh, you have somebody who uh was uh near and dear working on the Albertsons Kroger transaction. Um, I would say there was a heightened level at the start of the year. Your colleague mentioned it about seeing more activity. Quite frankly, I can, you know, I have my views of what should have happened, uh, and we didn't. But I do think overall, I really do think the competitive landscape of what is the historical views that the FTC has viewed, it's just different today. And I think that was missed. And I think that's missed in in cases. And so I do think depending on the industry, I heard technology mentioned, it's going to be very case specific. But I do think companies are dealing with uh more competition from the likes of bigger folks and bigger folks and other channels than were traditional channels. And I think all of that should be considered.
John, great to have you on set today. Thanks for joining us.
Great. Thanks for having me.
