Market movements, geopolitics, and deals: This Weekly Banking Insight goes the extra mile

Greetings and welcome back to this weekly global investment banking update where we talk about the top transactions, themes, and narratives in the investment banking world.

This week was quite eventful, urging a detour from our deal summary for the week. The current geopolitics, jobs and inflation data, and market movements have spurred interesting talks worldwide (something to remember when we are advising on transactions).

Global geopolitics

Tensions in Israel and concerns over China’s economic performance have the world glued to the newspapers.

One of the biggest reasons it is crucial to follow developments regarding Israel relates to how impactful it is on oil prices. If the oil supply or price in the Middle East gets seriously disrupted, we will witness history repeating with oil prices skyrocketing, costs of related industries increasing, and markets crashing. This is especially true with the Russia-Ukraine war already complicating oil sourcing and price stability. One of the worst hit industries in all this is the airline industry which is already struggling with keeping costs low while maintaining good quality service.

On the other side of the world, China is posing a threat to not only the luxury market as we read in our last Weekly Banking Insight but it is also struggling to deal with its excessive industrial capacity especially since the West is reducing its reliance on China (the most recent being the EV market where fears are looming regarding security). While China’s USP has been the ability to provide its goods for cheap, there are other emerging markets equally good and geopolitically less complicated which is making things tougher for China. It also seems that the Chinese economy has not rebounded to the extent the world was expecting since the pandemic adding to the worries. As a result, the first and most impacted in all this is the consumer market where China is a key customer. This is compelling consumer businesses to look outside of China and explore opportunities in other APAC countries giving rise to opportunities to other fast-growing emerging markets.

Market movements

American stock markets have ended positive this week after a grim start majorly triggered by better-than-expected (or rather in-line) US jobs data, slight positivity in the semiconductor sector with Samsung’s positive earnings announcement, and hope of possible rate cuts sometime this year (though it may be slightly pushed to the end of the year). But, the US Jobs data has ignited a great debate on the timing of the Fed’s rate cuts. The reason is, a high inflation, and low unemployment / growing jobs market mean that inflation may not cool off sooner, and hence, rates will have to be high to cut down on purchasing power and get the inflation back to acceptable levels. This also flashed a spotlight on the number of immigrants in the jobs data that may have impacted the unemployment rate.

The bond market picked up because investors are now factoring in later-than-expected rate cuts in the year.

Earlier in the week, oil prices shot up (Brent crude reached almost $91 a barrel) pushing down the markets, with the airline industry highly impacted.

Gold, silver, gilts, and arabica coffee – investors are confused about which booming investment to rely on!

Markets these days are really sensitive to (1) speculation on interest rate cuts by the Fed and the ECB, (2) oil prices, (3) inflation, real estate and jobs data, and (4) geopolitical concerns around China. Something to watch out for the ECM teams out there!

Where is UK in all this?

Talking about ECM, one cannot walk past the struggling UK listing market. Once known as one of the most prestigious listing markets in the world, the UK is now struggling to even retain its currently listed companies. Since the last few years, London has struggled to attract a good volume of IPOs, thanks to excessive takeovers, cheap valuations, high scrutiny, and lack of investor demand. The sector does not seem to have a ray of hope if the exchange fails to attract new issuers. The slowdown has already compelled consolidation among small to mid-cap brokers in the country, for example, the Cenkos-FinnCap combination in 2023 that formed Cavendish. However, some brokers believe that with interest rate cuts in sight and inflation easing, IPO markets will automatically become cheaper and more attractive and will start their recovery journey by the second half of this year. Apart from IPOs, investment trusts are also struggling now that they have lost their luster. With investors having a lot more choices with open-ended ETFs and with London stock markets underperforming for a long time, there is pressure from investors to return their capital and loads of outflow from the UK to the EU and the US. This has led to many listed investment trusts to buyback their shares or consolidate (who can forget the $1.2bn merger of Fidelity and Abrdn in 2023).

Alongside a dull IPO and investment trust market, Thames Water’s parent company defaulted on its bond payments while the UK house prices in March declined. The entire dynamic seems to have left the country’s small and lower mid-cap companies open for acquisitions, some at premium valuations while others just compromising to stay alive, depending on the sector and global expansion capability. It is not all doom and gloom with rising activity in the civil engineering side of things, construction in general, and NHS workers finally indicating the end of strikes!

Deal activity in the week

Johnson & Johnson to buy Shockwave Medical for $13.1bn

Johnson & Johnson has agreed to acquire Shockwave Medical for $13.1bn, following the spin-off of its consumer health arm. The deal, at $335 per share in cash, expands J&J’s presence in medical technology, focusing on Shockwave’s catheter-based treatment for calcified arteries. With approval from both boards, J&J aims to advance cardiovascular intervention. This move aligns with J&J CEO Joaquin Duato’s strategy to target high-growth segments. Shockwave’s technology has benefited 400,000 patients worldwide. J&J’s medtech division, with $30.4bn in sales last year, surpasses its drugs and diagnostics business. The acquisition underscores J&J’s commitment to innovation and patient care.

Amid all the chaos, Kering has acquired a luxury property in Milan for €1.3bn

Kering, owner of Gucci, acquires Milan’s Via Monte Napoleone 8 for €1.3bn from Blackstone, marking Europe’s largest property deal in two years. The retail block hosts Kering’s Saint Laurent store, alongside Prada and LVMH’s Cafe Cova. This strategic move follows luxury fashion houses’ trend of securing flagship locations globally. Despite a downturn, luxury retail real estate remains resilient, with Kering prioritizing key desirable sites in its portfolio expansion strategy. The Milan deal, the largest since March 2022, underscores Kering’s commitment to brand exclusivity and long-term growth through strategic investments in prime real estate assets.

Skydance is in exclusive talks to acquire Paramount Global

Skydance, known for Top Gun: Maverick, is in exclusive talks to acquire Paramount Global after the latter rejected a $26bn bid from Apollo. Skydance’s David Ellison has 30 days to finalize the deal with Shari Redstone’s National Amusements, Paramount’s majority owner. The proposed structure involves Skydance acquiring NAI before merging with Paramount. The move aims to conclude months-long negotiations. Paramount’s stock surged 15% to $13.52 post-announcement. Apollo’s bid offered a 44% premium, targeting Paramount’s debt without refinancing. Redstone favors a strategic deal with Ellison over a financial buyer like Apollo.

Silver Lake to acquire Endeavor Group for $13bn

Silver Lake is acquiring talent agency Endeavor Group for $13bn, a 55% premium to its late October stock price. Silver Lake, already holding 71% of voting rights, is privatizing Endeavor after lackluster performance since its 2021 listing. The move follows Endeavor’s failed merger with Ultimate Fighting Championship. Despite Endeavor’s majority stake in TKO, the latter remains public. Silver Lake values the consolidated business at $25bn, marking one of the decade’s largest private equity takeovers. Endeavor CEO Ari Emanuel and executives will roll their equity into the privatization. Additional investors include Mubadala, Michael Dell’s family office, Goldman Sachs Asset Management, and Lexington Partners.

Bid value disagreements on MotoGP

Bridgepoint rejected TKO Group’s bid for MotoGP, despite its €200m higher value compared to Liberty Media’s offer of €4.2bn, including debt. TKO’s Ari Emanuel expressed confusion over the rejection. While Bridgepoint didn’t dispute the bid’s value, citing cultural misalignment, TKO criticized the decision as failing fiduciary duty. Liberty aims to unite MotoGP with Formula One but may face regulatory hurdles. Liberty CEO Greg Maffei is confident in regulatory approval, intending to keep MotoGP separate.

Other key insights:

• Japanese companies are increasingly targeting outbound acquisitions, particularly in Southeast Asia, drawn by the region’s rapid economic growth and young population. Recent deals include Mitsui and Rohto Pharmaceutical’s $594m acquisition of Eu Yan Sang International.
• Itochu eyes growth investments up to one trillion yen, while Sumitomo Life Insurance bought TPG’s stake in Singapore Life Holdings.
• Deutsche Bank anticipates continued Japanese investment in Southeast Asia, driven by geographic diversification and low funding costs. Japan’s outbound M&A volume has nearly tripled in a year, exceeding $55bn, with sectors like consumer, healthcare, and infrastructure leading the trend.
• Allianz is planning to sell some of its US insurance business for c.$450m
• China-based firm CIC invested in Investcorp’s $800 million Mideast fund
• L’Oreal is planning to invest €3bn in a premium perfume brand
• EQT in exclusive talks to acquire smart meter firm Ocea from ICG

Parting thoughts

A lot going on this week giving us key themes to watch out for. To conclude, it seems the rate cuts narrative is driving the market sentiment. This helps sell-side bankers build their narrative to sell to the right investors at the right time. Investment banking is certainly at play in all this from restructuring to fundraising to consolidation so hopefully 2024 will bring a variety of deals rather than a spike in certain types of deals or certain sectors only.

Stay tuned for the summary next week to stay upbeat in this fast-paced sector!

Sources: Bloomberg, Financial Times, Desktop Research

Disclaimer: This weekly global investment banking update provides insights into recent transactions and market trends for informational purposes only. It does not constitute financial advice, and readers are encouraged to verify information independently before making investment decisions. The content reflects the views of the respective sources mentioned, and while efforts are made to ensure accuracy, completeness, and reliability, we do not guarantee it. Investing involves risks, and past performance is not indicative of future results. The mention of specific companies or transactions does not imply endorsement. Stay informed about regulatory changes and market conditions, and consider seeking advice from qualified financial professionals for personalized guidance.