Dealmaking on Wall Street hit a dead end last year and has struggled ever since.
That's bad news for investment banks. Companies going public or acquiring one another create opportunities for investors and banks to grow profits by providing advice or financing the transactions.
But after nearly two years of obstructions, bankers see a clearer path forward: artificial intelligence.
What's happening: Fears of a softening economy and market volatility have caused initial public offerings to dry up almost entirely. In 2022, the US IPO market fell 94.8% to $8 billion, a 32-year low.
That plunge has continued into 2023. Goldman Sachs reported a sharp drop in profits last quarter, citing dealmaking woes. Goldman saw investment-banking revenue decline by about 20%, and the company notched its worst quarterly profits since early 2020, during the pandemic-induced recession.
"Activity levels in many areas of investment banking hover near decade-long lows, and clients largely maintained a 'risk off' posture over the course of the quarter," Goldman CEO David Solomon said during an earnings call in July.
But green shoots are emerging. There have been 78 initial public offerings priced so far in 2023, a 22% increase from the same time last year, according to data from Renaissance Capital. Many of the IPOs have been tech or AI-related.
UK-based chip designer Arm made its Nasdaq debut earlier this month and began trading at about $56 per share, or 10% above its IPO. The company's market cap rose to nearly $60 billion in the largest public offering since 2021.
Instacart's successful September IPO opened at $42 per share, propelling the tech-enabled grocery-delivery company to a market valuation of just over $11 billion.
Both stocks have fallen back below their IPO price in recent days, but the fact that the deals got done at all is encouraging news for other rapidly developing AI and tech companies considering a public debut.
Mergers and acquisitions: New data from EY found that 80% of US CEOs plan to integrate AI into their products and services within the next year, meaning there will be a lot of demand to integrate AI through M&A, as well.
"For a CEO sitting in a seat today, AI is going to be the biggest disruptor of their tenure, and so they need to get in front of it," said EY Americas vice chair Mitch Berlin.
About a third of all M&A deals in the first half of 2023 were technology deals, and a lot of that was related to AI, said Berlin.
"You're going to continue to see AI be a significant driver of M&A volume," he said.
Last week, Cisco acquired Splunk, a cybersecurity firm with AI-powered offerings, in a $28 billion deal.
The success of these deals mean more M&A is likely on the horizon, said Dan Ives, a tech analyst at Wedbush.
"This also speaks to a massive wave of M&A we see on the horizon over the next 6-9 months in the broader tech and software space as more strategic and financial M&A starts to take hold," Ives said.
Comments
Post a Comment