Deal-making down as inflation, rate hikes spur caution

Jul 14, 2022, 8:00 AM | Updated: 9:20 am

Companies hit the brakes on deal-making during the first half of 2022 as concerns over pervasive inflation, interest rate hikes and the threat of a recession loomed over Wall Street.

Overall, companies announced $2.2 trillion worth of buyout deals in the first half of the year, a 21% drop from a year earlier. The number of deals also fell, dropping 17% during that period according to Refinitiv. It’s the slowest start to the year for deal-making since the pandemic stunned markets in 2020.

Some of the biggest deals, such as Microsoft’s $69 billion purchase of game maker Activision Blizzard, were announced early in the year, before the long list of worries really started weighing on Wall Street. The tally also includes Elon Musk’s $44 billion takeover bid for Twitter, announced in April but now uncertain to go through.

Recession concerns have hampered deal-making, but worries about higher interest rates have also played a key role in crimping activity. Higher interest rates make deals, much like overall borrowing, more expensive and tend to make companies more cautious about pursuing big purchases.

“Higher interest rates, by definition, cause the discount mechanism to fade,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “If you believe interest rates are going to trend higher, the goal is to get the deal done before then.”

The Federal Reserve had kept rates at historic lows to goose economic growth during the pandemic. That helped fuel gains for the stock market as well as a surge in M&A activity. Now the Fed is aggressively raising rates to help temper inflation by slowing economic growth. Wall Street is worried that the Fed could hit the brakes too hard on an already slowing economy and send the economy into a recession.

Technology sector deals, which are typically among the biggest, totaled $531 billion in the first half, a 19% drop. The sector has been hit particularly hard by concerns about rising interest rates, which make pricey stock valuations less attractive to investors.

Analysts expect companies and investors to remain cautious until they see inflation easing enough to prompt the Fed to soften their rate increases.

“We’re kind of in an inflection point,” said Matt Toole, director of deals intelligence at Refinitiv. “But, M&A has proved to be a very resilient area of the market from a value and volume perspective.”

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


FILE - Maricopa County Recorder Stephen Richer speaks inside the Recorders Office, Nov. 9, 2022, in...
Associated Press

Dominion conspiracies highlighted by Fox lawsuit have election officials concerned for safety

Maricopa County officials are bracing for what could happen when it comes time to replace its contract for voting equipment.
1 day ago
A building is damaged and trees are down after severe storm swept through Little Rock, Ark., Friday...
Associated Press

Tornado causes widespread damage to buildings, vehicles in Little Rock

A tornado raced through Little Rock and surrounding areas Friday, splintering homes, overturning vehicles and tossing trees.
1 day ago
FILE - Former President Donald Trump speaks with reporters while in flight on his plane after a cam...
Associated Press

Worries grow that Trump indictment could undermine public confidence in other investigations

Trump’s attempts to overturn those results amid false claims of widespread fraud are at the heart of two other ongoing investigations.
1 day ago
(Facebook Photo/Superior Court of Arizona in Yavapai County)...
Associated Press

Arizona judge has cases reassigned following DUI arrest

The Arizona Supreme Court has ruled that all cases currently assigned to a Yavapai County Superior Court judge recently arrested on suspicion of extreme DUI will be reassigned to other judges.
5 days ago
Haitian migrant Gerson Solay, 28, carries his daughter, Bianca, as he and his family cross into Can...
Associated Press

US, Canada to end loophole that allows asylum-seekers to move between countries

President Joe Biden and Canadian Prime Minister Justin Trudeau on Friday announced a plan to close a loophole to an immigration agreement.
8 days ago
Expert skateboarder Di'Orr Greenwood, an artist born and raised in the Navajo Nation in Arizona and...
Associated Press

Indigenous skateboard art featured on new stamps unveiled at Phoenix skate park

The Postal Service unveiled the “Art of the Skateboard" stamps at a Phoenix skate park, featuring designs from Indigenous artists.
8 days ago

Sponsored Articles

(Pexels Photo)...

Sports gambling can be fun for adults, but it’s a dangerous game for children

While adults may find that sports gambling is a way to enhance the experience with more than just fandom on the line, it can be a dangerous proposition if children get involved in the activity.
Fiesta Bowl Foundation

Celebrate 50 years of Vrbo Fiesta Bowl Parade magic!

Since its first production in the early 1970s, the Vrbo Fiesta Bowl Parade presented by Lerner & Rowe has been a staple of Valley traditions, bringing family fun and excitement to downtown Phoenix.
Day & Night Air Conditioning, Heating and Plumbing

Prep the plumbing in your home just in time for the holidays

With the holidays approaching, it's important to know when your home is in need of heating and plumbing updates before more guests start to come around.
Deal-making down as inflation, rate hikes spur caution