DealLawyers.com Blog

Wachtell Lipton recently published the 2024 edition of its 237-page “Takeover Law and Practice” publication.  It addresses recent developments in M&A activity, activism and antitrust, directors’ fiduciary duties in the M&A context, key aspects of the deal-making process, deal protections and methods to enhance deal certainty, takeover preparedness, responding to hostile offers, structural alternatives and cross-border deals. As always, the publication is full of both high-level analysis and real-world examples.

It has this to say about the recent market for acquisition financing:

Widely held concerns about inflation, rising interest rates and a possible recession combined to slow debt financing and deal activity in the first half of 2023. Borrowers deferred new debt deals, delayed planned refinancings and paused major corporate transactions while waiting for interest rates to top out. Financial sponsors, in particular, held back on debt-financed leveraged buyouts while watching to see whether interest rates (or business valuations) would fall. Direct lending remained hot, continuing to fill in market gaps, but it was by no means a borrower’s market, whether in terms of pricing, terms or leverage multiples.

The story changed somewhat in the second half of the year. Inflation slowed and deal activity picked up. […] When the dust settled, 2023 investment-grade bond issuance stood at $1.14 trillion, highyield bond issuance stood at $169 billion, and leveraged loan issuance stood at $737 billion. With the exception of the high-yield bond figure, which was up $65 billion from the 13-year low of
2022, those figures were basically flat year-to-year (and were paltry compared to the boom year of 2021, when high-yield bond issuance exceeded $450 billion and leveraged loan issuance exceeded $800 billion).

Sustained higher interest rates have also increased pressure on already challenged businesses that incurred (too much) debt in the days of “lower for longer.” […] Despite anticipated rate cuts in 2024, “higher for longer” remains the order of the day and markets seem to be embracing this new normal. 2024 is off to a dynamic start, but careful planning and sophisticated advice on debt-related issues will remain paramount, however the environment evolves.

– Meredith Ervine