The astonishing highs of capital markets and deal making activity during the pandemic-hit year of 2020 have been eclipsed in the first quarter of 2021, as companies have tapped into continued demand for investment returns.
- In Q1 2021 deal making, global IPOs, secondaries and convertible hit all-time highs.
- Debt issuance resumed its upwards trajectory, to hit $2.5trn, which was the fifth quarter in a row to exceed $2trn.
- M&A surged to $1.3trn, which was driven by private equity and U.S. special purpose acquisition companies (SPACs) – an increase of 94 percent, year-on-year.
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In the first quarter of 2021, global equity markets smashed records by both value and volume, with 1,889 issuance, raising $346bn, to make it the strongest opening quarter since records began in 1980.
Meanwhile, global debt markets hit $2.5trn – the fifth consecutive quarter to surpass the $2trn mark, driven by strong increases in the U.S. and the UK.
And M&A activity increased 94 percent year-on-year to $1.3trn, the largest first-quarter since records began 40 years ago.
Equities ahead on all fronts
Equity capital raisings globally increased another 7 percent on Q4 of 2020, with IPOs (excluding SPACs) topping a record $100bn – nearly four times more than a year earlier, and the highest sum since records began.
The new-listings have been U.S.-dominated, with U.S. exchanges seeing a 423 percent increase, while Chinese IPOs more than doubled to hit a record $26bn.
In addition, an all-time record of nearly 1,300 secondary offerings raised $178bn, 127 percent up on a year earlier. Meanwhile, convertible offerings hit a record $68bn to account for 20 percent of ECM activity.
U.S. investors appear to have the strongest risk-appetite at this point, with the geography accounting for 37 percent of all equity market issuance by value, raising $130bn – an increase of almost 250 percent year-on-year. Asia-Pacific’s impressive increase of 140 percent, to reach $102bn, looks tame by comparison.
All this activity, plus the SPAC phenomenon (see below) pushed equity-related investment banking fees in the first three months of 2021 to $15bn, more than four-times higher than a year ago.
Debt goes up again
Debt issuance had been on a steady decline in the second half of 2020, from its stratospheric levels in Q2 2020, but still at historically high levels. But the opening quarter of 2021 saw debt issuance increase again, to raise $2.5trn, while pushing DCM fee-income up 4 percent to another all-time high.
In particular, high-yield issuance rose 83 percent on the year, to reach $205bn, driven primarily by triple-digit percentage increases from issuers in the U.S. and the UK.
By sector, telecoms, consumer staples and real-estate issuance dominated the quarter.
International bond offerings were up 8 percent to reach $1.5trn, an all-time first quarter high, although debt from emerging market corporate issuers fell 9 percent year-on-year, to just shy of $100bn.
Global M&A surged 94 percent, year-on-year, to reach $1.3trn in the first quarter of 2021, the strongest start to a year since records began in 1980, and just shy of the biggest ever quarter (Q2 2007). The number of deals was also up 9 percent to hit a three-year high.
The market growth was driven by private equity firms, as well as the acquisition activity of newly raised special purpose acquisition vehicles. Buy-out firms increased their investment rate by 57 percent to complete 2,800 investments in the first quarter. Meanwhile, SPACs accounted for 17 percent of the M&A market, making 110 initial business combinations, at an aggregate $232bn.
Most of the action in Q1 was in deals of between $5bn and $10bn, which more than doubled to an aggregate all-time high of $274bn. Meanwhile, the value of cross-border deals grew 135 percent to reach $458bn and another all-time record.
Once again, the U.S. market drove much of the M&A growth, with a 161 percent increase in U.S. target-acquisition to $671bn, a first quarter record. As a result, the U.S. currently accounts for half of the global M&A market.
However, there was healthy growth across the board, with the value of European M&A up 23 percent to $274bn compared with a year ago, while Asia-Pacific M&A grew 48 percent to a six-year high of $218bn.
The start of 2021 also saw an all-time record value of technology M&A at $274bn, more than tripling 2020 levels, to account for more than one-fifth of the market.
Fees hit all-time quarterly record
Investment banking fees were up 45 percent on the year to hit an all-time record of $39.4bn, and higher even than Q2 2020. The Americas saw a 70 percent increase in its fee earnings to $23bn, providing the region’s deal-makers with at 59 percent cut of global fees. Fee inflation in EMEA and APAC was more subdued, with a 20 percent and 15 percent increase respectively.
JP Morgan retained the top place for investment banking fees, earning $3.2bn to take an 8 percent market share. Among financial sponsors, Brookfield Asset Management was the biggest investment banking customer, paying $221m in the first quarter of 2021 for its investment and exit related advice.
So far, activity levels in the market appear to be directionally in line with Refinitiv’s Deal Makers Sentiment Survey.
Following 2020’s record-breaking year, respondents anticipated no mean-reversion, but rather further increases in activity, with particular optimism among U.S. based advisers – which reflects an America-centric uplift in Q1.
If anything, M&A bankers appear to have underestimated the uptick in corporate acquisition activity. While there is 75 percent of the year still to run (in data terms anyway), things are off to a buoyant start.
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