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Global capital markets boom: the end of the beginning?

Cornelia Andersson
Cornelia Andersson
Head of Investment Banking and Capital Markets, Refinitiv

As we come to the end of 2021, Refinitiv’s Head of Investment Banking and Capital Markets looks back at the wild ride of the past 18 months of record-breaking activity, and whether 2022 will see a return to more normal levels of deal making, or the establishment of a genuine ‘new normal’.

  1. The record level of M&A that has been witnessed in capital markets over the past 18 months is expected to continue into 2022.
  2. 2021 is the biggest IPO year ever, with more than 1,800 across the globe. The estimated aggregate value is $360bn – more than twice the previous record.
  3. Sustainability will be a growing driver of deals and structuring.

The past 18 months has been an eye-watering ride for global capital market professionals.

As the world economy largely came to a halt during the pandemic lockdowns of 2020, international capital markets came to the rescue, and reached record levels of activity.

After such an exceptional year, Refinitiv asked deal makers what they thought prospects were for 2021. The answer was bullish: more growth. And so it has proved.

Refinitiv Deal Makers Survey. Global capital markets boom: the end of the beginning?

As we come to the end of 2021, global capital markets continue to reach new heights across all asset-classes, including record levels of M&A, capital markets issuance and more companies going public than ever.

As a result, capital markets have become a fundamental driver of economic activity and growth in today’s ‘new normal’ global economy. In the face of uncertainty and disruption, they have provided companies with access to liquidity, in what amounts to an unprecedented transfer of capital from savers to borrowers.

In so doing, they have introduced local companies to international investors, and allowed them to issues shares and fund acquisitions and expansions. We are currently seeing an average of 500 deals a day.

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M&A catches up

In the early part of the pandemic, companies were in control and containment mode, and were raising capital to shore up balance sheets, driving bond issuance to record highs. At that point, whatever M&A activity that had been planned was postponed.

Since then, the M&A market has caught up… and then some.

So far in 2021, we have recorded $5.2trn in M&A transactions, a figure that surpasses all previous records.

Global announced M&A volumes

Throughout the past 18 months we have seen strong levels of activity from mega deals – those over $5bn – helping to supercharge the M&A world. But it is not just a small handful of huge deals: we have recorded about 50,000 deals this year to-date, which underscores a healthy level of activity across the corporate sphere.

Private equity investors in particular are taking advantage of market turmoil to put their funds to work – buy-out firms now account for 20 percent of the M&A market, a record proportion.

We are also witnessing an astonishing surge in the amount being raised by new listings on global stock exchanges.

Initial public offerings are long and expensive processes, typically reserved only for the best companies. So far in 2021, we have seen the biggest IPO year in history, with over 1,800 reported globally, the highest number since records began in 1980.

In value terms, this is an aggregate $360bn, a figure that more than doubles the previous record set in 2007.

Global IPO volumes

Unsurprisingly, technology is leading the way. One-in-five new listings come from the tech sector, and account for one-third of all proceeds. The tech-heavy NASDAQ is the most popular venue, followed by New York, Hong Kong and the tech-focused STR exchange.

What’s in store for capital markets in 2022?

The big question is, will 2022 be the beginning of the end for this unprecedented period in global capital markets, or merely ‘the end of the beginning’?

Much is dependent on that elusive factor: sentiment, and whether CEOs have the confidence to undertake multi-year synergy and integration programmes.

Many deal makers expect 2022 to be even stronger than last year, exceeding the dramatic recovery in H2 2020 in both M&A and capital markets.

Certainly, the fundamental drivers remain in place. A continuing low-rate environment means M&A offers company managers a rare way of securing growth. In addition, in an uncertain economic environment, M&A transactions allow companies to rapidly future-proof and build-out their capabilities.

We are also seeing consolidation drivers across many sectors, as companies seek efficiency gains.

All of this is supported by a ready availability of cost-effective debt financing to fund these acquisitions.

If sentiment holds and the risk-on environment endures, this should be good news for IPOs, and their riskier counterpart, SPACs, which have seen a sudden coming-of-age in the U.S. in the past 18 months.

While other jurisdictions have made moves to attract this fast and efficient form of reverse-listing, investor appetite across local markets is yet to be proven.

How is ESG driving capital markets activity?

A relatively recent additional driver of activity is sustainability and the ESG agenda, with two-thirds of deal makers identifying this as important.

This is a consequence of a ‘push-pull’ factor, from private sector pressure, particularly via major asset managers, as well as increasing regulatory oversight, such as the EU’s SFDR regulation.

Earlier this year, we saw the UK government’s debt management department issuing the largest ever green bond on the London Stock Exchange in a landmark deal that underlines the amount of investor appetite in this area.

We expect even more focus here in 2022, as the issue impacts how companies put capital to work.

In short, there is every reason to be optimistic about deal making activity in 2022, as the capital markets continue to serve a vital function in the healthy maintenance of corporate activity and performance, globally.

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