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Capital markets see tepid recovery in H1

Matthew Toole
Matthew Toole
Director, Deals Intelligence

Matthew Toole analyzes the first six months of 2023, where global capital markets have largely halted the slide in activity seen during the second half of 2022.

  1. Sovereign retreat sees debt issuance fall 5% to $4.7trn.
  2. Equity markets up 13% but IPOs remain scarce.
  3. Healthcare M&A soars amid souring market

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Debt issuance has opened the year positively but remains down on the same period last year, while equity issuance has stabilised, albeit at nearly half the run-rate of the 2020-2021 surge. Meanwhile, global M&A suffered its weakest H1 tally since 2020, as even cash-rich private equity buyers apply the brakes.

A total of $4.7trn in debt was issued across global debt capital markets in the first six months of 2023, a fall of 5% on the same period last year. The decline was driven by an ongoing wind-down of issuance by agency, supranational and sovereign borrowers, in the aftermath of the Covid measures. But there is brighter news…

Corporate borrowers are cautiously returning to the market. While not sufficient to offset the public sector retreat, appetite for investment grade issuance has bounced back from its depression at the end of 2022, to reach $2.4trn, a 1% gain on the first half of 2022.

Meanwhile high-yield issuance has recovered from the very weak levels of late 2022, rising 30% to $119.5bn. High yield issuers from the US, Germany and Canada accounted for three-quarters of the global market.

Another bright spot is Green bonds, which is growing at 19% year-on-year and have surpassed the high yield market in size. In the first half of 2023, there were $271bn of green bonds raised, and momentum for the product remains positive: Record Q2 issuance was 11% higher than the first three months of the year, according to data from Refinitiv and the Climate Bonds Initiative.

By sector, some consumer-related industries have seen a healthy comeback in debt issuance in the first half of 2023, with Media & Entertainment and Consumer Products enjoying double-digit percentage growth, along with Energy & Power. By contrast, issuance from the Retail and Telecommunications industries declined.

Meanwhile, loan markets are experiencing a more prolonged borrower/lender disconnect, with global syndicated lending falling 23% during H1, to a seven-year low of $2trn.

In the debt capital market league tables, JPMorgan maintains a six-year unbroken streak as the number one underwriter in global debt markets, while BofA Securities switches places with Citi to take second place.

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Equity markets polarise

Global equity markets continue to be highly discerning, with growing appetite for established equities and much greater caution towards new issuers. Overall activity in ECM is positive, up 13% year-on-year to total $275bn, and 10% growth by number of processes, to reach 2,300.

Follow-on offerings brought in $172bn in H1, more than a fifth higher than a year ago, while convertible offerings leaped 55% to $45bn.

But the appetite for new tickers remains weak, with proceeds from initial public offerings falling 22% globally to just $57bn, a seven-year low. Flotations on US exchanges doubled from a very low base, cobbling together less than $9bn over the course of six months, compared to more than $30bn of IPO proceeds raised on Chinese stock exchanges.

In the equity capital market advisory rankings, Goldman Sachs maintained its grip on the top slot as the most active equity underwriter globally for the third consecutive H1, while Morgan Stanley and BofASecurities both bounce back from relative obscurity to take second and third place respectively.

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Healthcare M&A: the only game in town?

If the M&A market is in the doldrums (and it is), nobody appears to have told the healthcare sector. As deal levels plummet, healthcare M&A has grown 43% compared to the same period last year, to total $188bn, and accounting for 14% of the global M&A market. By contrast, Energy & Power deals have fallen 23%, while technology transactions are at barely a third of the levels recorded in early 2022, dropping 66%.

Overall, world-wide M&A has fallen 37% in the first half of 2023, to $1.3trn, the slowest H1 for deal-making since 2020. The number of deals also fell, but by a more modest 9%, to 27,300 transactions, reflecting a greater retreat among larger ticket acquisitions.

European M&A has been hardest hit, dropping by nearly half, year-on-year to total just $263bn – the slowest period for a decade. US deal-making fared little better down, 40% to $566bn, its slowest first-half in three years, while Asia-Pacific M&A dropped 35%.

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Mega deals of more than $10bn have dropped 53% year-on-year to total $259bn, the slowest period since 2017. Smaller deals have also fallen, with sub-$500m transactions down 36% to total $376bn. Meanwhile, cross-border deals are down by a quarter to $494bn.

Meanwhile, the M&A malaise has inevitably spilled over into the syndicated loan market, where acquisition related finance has fallen 56% to a 13-year low.

M&A prognosis for H2?

For those banking on a recovery in deal-making in the second half of the year, the signals are conflicting. On the bright side, while H1 data is weak, a closer look at quarterly data shows a global M&A bounce-back in activity between Q1 and Q2 of more than a third.

On the other hand, private equity-backed deals are down by nearly half, year-on-year, marking the slowest period for private equity since H1 2020. Not just that, but the buy-side retreat has not bottomed-out yet, with Q2 private equity deals down 19% since the previous three-month period. When investors with long-term committed capital are sitting on their hands, it could mean valuations have further to fall.

Amid these limited pickings, Goldman Sachs remains top of the global M&A rankings, while JP Morgan switches places with Morgan Stanley to take second place.


Want to learn more? Access our on-demand webinar here for a deep dive into global and regional trends, cross border activity and an exploration into sectors and industry highlights for H1 2023.

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What is the M&A prognosis for H2?

On the bright side, while H1 data is weak, a closer look at quarterly data shows a global M&A bounce-back in activity between Q1 and Q2 of more than a third.