Disponible en anglais seulement BMO was a proud sponsor of the 2024 BloombergNEF Summit in New York, which recently took place and brought together over 700 thought leaders and senior industry professionals to discuss the future of energy, finance, and technology. Today’s episode features key takeaways from a panel Rachel Walsh, Environmental Commodities Strategist at BMO Capital Markets, joined titled “America’s Carbon Markets: The Only Way is up. Or is it?”  Sustainability Leaders podcast is live on all major channels, including  Apple and Spotify. 

Disponible en anglais seulement Featuring Colin Hamilton, Commodities analyst at BMO Capital Markets, Metal Matters discusses the hot topics in Global Metals & Mining each week. This episode is hosted by Colin Hamilton, Commodities Analyst  In this episode we discuss the unusual situation happening in copper at present, why iron ore might be the best way to play Chinese recovery, gold demand, and BMO’s economic expectations. (13 mins). TRANSCRIPT Subscribe to this free podcast and never miss an episode or visit the BMO Equity Research website for more great episodes of Metal Matters.   Podcast disclosure  

  Le contenu de cet article sera accessible en français à une date ultérieure. Restez à l’affût! With financial markets stable and companies generally sounding more upbeat, could interest rates cuts – and a resulting resurgence in M&A – be on the horizon? That was the focus of the M&A: Moving On and Up panel at the Milken Institute Global Conference 2024 in Los Angeles. After a year stuck in idle, there are several reasons to believe that M&A is nearing the start of a new, active cycle featuring larger deals. That’s not only my view, but it’s also a sentiment shared during my discussion with: Romaine Bostick, TV Anchor, Bloomberg (Moderator) Anu Aiyengar, Global Head, Mergers and Acquisitions, J.P. Morgan Andrew Bednar, Partner and CEO, Perella Weinberg Partners Ron Eliasek, Chairman, Global Technology, Media, & Telecom Investment Banking, Jefferies Financial Group Andrea Guerzoni, Global Vice Chair, Strategy and Transactions, EY With an estimated 28,000 portfolio companies waiting for an exit and private equity facing increasing pressure to deploy trillions in dry powder, there is a growing sense the market is focusing less on headwinds and more on looking for catalysts to spark the next round of activity.   Markets Plus is live on all major channels, including  Apple and Spotify.  Here were some of my key takeaways from the conversation: M&A green shoots High interest rates and the elevated cost of capital have provided the strongest headwinds facing the M&A market over the past two years. While those challenges remain, green shoots are emerging. The fact that central banks have discussed cutting rates at some point this year has been enough to dislodge the market. As one of my fellow panelists pointed out, the number of deals over US$1 billion is up by 26% over the past 12 months, including 20 deals over US$10 billion announced within the past four months. Deals of that size were notably non-existent last year. Bond and equities markets continue to be fickle, but the financing markets are robust with corporate activity showing longer and longer periods of activity. We’re also seeing a reweighting of equity market valuations, as the expectations between buyers and sellers narrow and open the door for more productive conversations. And the market is motivated. For instance, as hard as executives have worked over the past year to drive earnings and use dividends and buybacks to boost their valuations, we are getting to the stage where they’ve exhausted the effectiveness of those tools. They now must look to M&A to meet investor expectations. Confidence is recovering As we were reminded during the panel, confidence fuels conviction in the M&A market. Unlike equities and bonds, which reflect future price predictions, dealmakers must have the conviction that the prices in the market today will generate the ROI they seek over the long term. While deal chatter may not suggest the M&A market has returned to its pre-pandemic levels, surveys of financial decision makers show that confidence is returning. Unlike past M&A cycles that were heavily concentrated on a few key areas like tech, telecom or energy, the panel sees more broad-based activity in the market. During the conversation, one of the panelists shared the results of a survey that showed that more than two-thirds of CEOs are considering some form of divestment spin-off or carve out. Go-private deals, which all but disappeared last year, are also up about 25% so far in 2024. As another panelist so aptly put it, between improving sentiment and private capital strategies with more than US$4 trillion ready to deploy, “we have the ingredients for ignition here.” However, the trajectory of the market will be more like a plane gently taking off and gaining altitude rather than a rocket streaking higher. Risks remain While the mood has changed, risks remain. With active geopolitical conflicts, the mood for cross-border deals remains muted. The panelists did not see a dramatic shift in that dynamic anytime soon.The cost of capital also still needs to come down. High interest rates continue to hamper the leveraged buyout market. The paydown math simply doesn’t work when deals are six- or seven-times leverage. As much as the big-ask spreads between buyers and sellers have narrowed, we could be getting to a point where dealmakers must be willing to accept a slightly lower internal rate of return to get a deal across the finish line. This new reality is partially linked to ancillary costs that have been driving up acquisition prices. For instance, one panelist noted that litigation costs and incentives to keep key people in place have become a substantial part of the overall deal cost. With a higher cost of entry, M&A deals are getting bigger as companies seek opportunities that can justify the time and resources now required to close a deal. Yet, while these threats persist, there are also a lot of opportunities to explore, particularly in response to the recent leaps forward in generative AI and other emerging opportunities. The M&A pipelines forming now are a completely different from what was seen a year ago, creating a broader sense of urgency amongst dealmakers. Creative thinking The way deals are getting structured is shifting, with a higher percentage of our clients looking to use their stock as their currency as opposed to exposing themselves to financial markets. During the conversation, it was noted that about a third of transitions are all stock or a mix of stock and cash. The high valuation of the U.S. dollar is also fueling demand for U.S. businesses, with many foreign companies looking to gain more exposure to the U.S. market. With the IPO market sluggish – which is as much a response to the current economic environment as it is to the increasing prominence of passive index investing– private equity and institutional investors are exploring different ways to monetize their portfolio companies. In some instances, they’re maintaining a stake rather than exiting those businesses altogether, or they’re pursuing strategic mergers with two different companies. The panel also heard that sponsors are getting more creative around how to raise fresh capital, which might include bringing in new partners, tapping growth in family offices, and looking at alternative pools of capital to bring more minority investors into the fold. There’s also been an increase in the usage of fund facilities, margin lending and various other leverage tools to access capital to create liquidity and give more optionality for the sponsor. Here at BMO, we see M&A market dynamics improving over the next 12 to 24 months. As I said during the panel, the industrial logic continues to be very disciplined and very strong. What’s really driving transactions are the opportunities for companies to strengthen their operations and better manage their risks – whether they’re currency risks or economic exposures. As dealmakers are getting more creative, transactions are becoming more complex. That’s where BMO can add value by helping to resolve some of the issues holding up a deal and getting it across the finish line.