More Companies Pause Deal-Making Amid Market Volatility, High Inflation

Many companies are taking a pause on acquisitions as a cocktail of worrying economic factors, including high inflation, rising interest rates and market volatility, is sapping the confidence of buyers and sellers.

During the first nine months of the year, the value of global mergers and acquisitions announced by companies plunged 34%, to $2.81 trillion, according to Refinitiv, a data provider. That is the largest year-over-year drop since 2009, when M&A declined amid the global financial crisis by 42% compared with 2008 levels, Refinitiv said. Deals declined across global markets, with those involving sellers in the Americas down 40% from a year earlier, to $1.3 trillion, and in Europe down 24%, to $712.2 billion.

Many companies and their finance chiefs are putting their expansion plans on hold, taking a wait-and-see approach to M&A until they have a firmer grasp on where the economy is headed, advisers and executives said. That is true even though valuations have come down and strength of the dollar against most major currencies gives U.S. buyers more purchasing power to scoop up overseas targets.

“All signs are pointing to this resetting stage, where companies have taken a pause on what their M&A playbook might look like,” said

Matt Toole,

director of deals intelligence at Refinitiv.

Deal-making activity is expected to remain tepid overall during the fourth quarter compared with 2021, barring an improved economic outlook and lower inflation readings, M&A advisers said. But pockets of deals continue to get done, particularly involving investment-grade companies with ready access to financing, or some private-equity firms looking to deploy capital, advisers said.

A weaker economy could push companies to change the types of deals they pursue, once they regain confidence in their M&A plans, executives said. For instance, spinoffs or divestitures could become more popular deal structures as companies review their business models, Refinitiv’s Mr. Toole said. During the third quarter, U.S. divestitures declined 21% from a year earlier, to 340, coinciding with a broader slump in deal-making, according to Dealogic, a data provider.

The strength of the U.S. dollar against other currencies could also make cross-border transactions more attractive to U.S. companies, giving them more purchasing power to acquire attractive targets, advisers said. Cross-border transactions globally declined 38% during the first nine months of the year, to $930.1 billion, according to Refinitiv.

“The relative strength of the dollar is going to be an element” in companies’ future deal calculations, said

Andrea Guerzoni,

global vice chair of strategy and transactions at consulting firm Ernst & Young.

During the third quarter, rising financing costs and uncertainty about the pace of future interest-rate hikes made companies skittish about moving forward with potential transactions, M&A advisers said. Additionally, big swings in the stock market made it more difficult for companies to use their stock as currency, or get comfortable with a selling price, they said.

U.S. investment-grade bond issuance during the quarter fell 17% from a year earlier, to $272.6 billion, according to Refinitiv. High-yield issuance plunged to $17.4 billion from $103 billion over the same period, Refinitiv said. Banks, meanwhile, are facing hundreds of millions of dollars in losses on financing deals tied to the buyout of cloud-computing company Citrix Systems Inc., as well as

Elon Musk’s

planned takeover of

Twitter Inc.,

due to volatility in the high-yield credit markets.

Even a number of early M&A discussions, including about possible financing options, are drying up, M&A advisers said. “Companies are definitely not getting to that stage, to the extent they were even three or four months ago,” said

Stephen Philipson,

head of commercial products at Minneapolis-based

U.S. Bancorp.

Still, for companies with access to available cash and financing, the projected benefits of a major acquisition can still hold up amid fears of a recession.

Adobe Inc.,

which makes graphic design and other types of software, last month struck the largest deal in its history, agreeing to buy Figma, a collaboration software company, for about $20 billion. The deal is expected to provide Adobe with access to a broader group of customers, as Figma’s users also include product managers and software engineers who build apps and other technology products.

Dan Durn, chief financial officer of Adobe.



“Leaders at times like this invest in growth, invest in defining markets, invest in leadership. This is us being a leader in the markets we participate in,” Chief Financial Officer

Dan Durn

said when asked about the timing of the deal in a tough M&A market.

San Jose, Calif.-based Adobe plans to pay for the deal with approximately equal amounts of cash and stock. In advance of the closing of the deal, which is expected in 2023, the company plans to reduce share buybacks to add cash on hand for the transaction. Adobe may also use term loans to fund the cash portion of the deal, if necessary. During the latest quarter, Adobe acquired 5.1 million shares at a cost of $1.8 billion, it said. The company as of last month had $8.3 billion remaining in its $15 billion buyback authorization, which was granted by the board in December 2020 and goes through 2024.

Adobe as of Sept. 2 had $3.9 billion in cash and equivalents on its balance sheet, roughly on par with the end of 2021. The company’s shares are down 49% so far this year, closing at $288.77 Friday.

Other companies, however, continue to stay on the sidelines as new opportunities arise.

Intuit Inc.,

the company behind TurboTax, QuickBooks and other financial software, doesn’t see declining valuations in the current environment as a reason in itself to do a deal,

Sasan Goodarzi,

the company’s chief executive, said during an investor day last month. The company has been acquisitive in recent years, including scooping up email marketing pioneer MailChimp in November for about $12 billion.

“We don’t become hungrier because valuations are down, because acquisitions are very important decisions for us. Acquisitions are hard to make work,” Mr. Goodarzi said at the event.

Write to Kristin Broughton at

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