00:00Let's start with just how much more space there is for the likes of some of the mega deals that we've heard announced,
00:05how much more appetite there is in capital markets, and how many potential contenders there are still out there.
00:10Yeah, it has been a bit of a roller coaster ride.
00:13Sitting here today, it looks like a fantastic M&A market.
00:16But if we were having this conversation even six months earlier, I think the picture would have looked dramatically different.
00:23We've seen an increasing trend.
00:24And really, the conversations in the boardroom kind of picked up in May, and you saw the printing of the deals happen August onwards.
00:32And every month has been bigger than the previous month to now 70 what we call mega deals, right, rather than $10 billion deals, which is an all-time high.
00:42But yet, while the volumes are 40 percent up, the number of deals itself has actually been down, right, so because of this mega deal trend that you see.
00:54Having said that, what is driving that?
00:57Why are people focusing on scale?
01:00The equity markets have really given a premium to scale.
01:04The size of a company to join the S&P 500 has tripled.
01:09The size of a company to join the S&P 600 has doubled in the last five years.
01:14So that's a pretty dramatic focus on scale.
01:19And people are not just chasing size for the size sake, because it's not any type of scale.
01:25It's strategic scale, focused scale.
01:29Because at the same time that you've seen these scale transactions, the market has also wanted corporate clarity.
01:35You've seen spins, splits, reverse mortise trust transactions.
01:39So sometimes it can be a bit confusing, right?
01:41Okay, you want scale, but at the same time you want focus?
01:44Like, how does the two things come together?
01:46What's fascinating is a lot of people have taken a look at the M&A schedule and said this indicates CEOs feeling confident about the economy,
01:53feeling confident about capital markets.
01:55The way you're framing it sounds slightly different.
01:58It's the idea of an opening to get in on a scale game at a time when that indicates resilience.
02:03Post-pandemic, post-tariffs, the more scale you have, the more ability you have to negotiate and be nimble.
02:09How is that different than just screaming confidence about the economic cycle?
02:12No, you're exactly right in that the driver of it is not, I feel good about the world, let me go do M&A.
02:19The driver here is very different.
02:22The driver is that scale allows you to have more control over your supply chain,
02:28allows you to get synergies and invest more in tech capabilities.
02:34The amount of AI infrastructure investment that the economy has needed is these are big numbers.
02:41So to make this type of capital investments, companies need synergies from this combination to do that.
02:48And when the external environment is so volatile, there's a lot of uncertainty.
02:52That hasn't gone away.
02:54Larger companies are able to withstand the risk in the system better and navigate it better.
03:03So there's a reason why the market is giving a premium to scale.
03:07And that's what people are chasing.
03:08So most of these deals are not people thought of this deal today.
03:12These deals have been that are files and binders put together over two, five years where CEOs have said,
03:22this is a company that we should buy, but I don't know whether they are open.
03:25I don't know whether other people will look at it.
03:28Is this the right time?
03:29Will my investors support it?
03:30And these are finally happening now because there's also an expectation that in addition to the market rewarding scale,
03:38the regulatory environment may be, in certain cases, easier to navigate.
03:44So you take kind of the combination of all three factors, right?
03:48External market risk allows you to navigate better when you have the scale.
03:51And market values scale and gives you a valuation premium, which has been an all-time high, the scale-related valuation premium,
04:01and a regulatory environment that may be more favorable for M&A.
04:06Put all of those things, and that's the perfect recipe for the market that we are in.
04:11Anu, JPMorgan Chief Interest Rates Strategist Jay Barry is calling for the Fed to cut rates again in Jan
04:17before pausing to take stock of the economic outlook, right?
04:20And I'm just curious, how are interest rate expectations shaping the boardroom
04:24when you're having conversations with JPMorgan's corporate clients?
04:28Yes, I think this has a bit more of a focus on the private equity community and sponsor activity.
04:35For most of the strategic deal activity that is happening, there is no dearth of financing,
04:41or that is not a big consideration, that interest rates are going to be 25 basis points here or there,
04:47because people are taking a long-term view on what is going to happen in my industry sector.
04:53How do I become an endgame winner?
04:56What are the chessboard moves?
04:57On the private equity side, there has been a little bit of, you've seen,
05:01that we haven't had as many monetizations in 23 and 24,
05:05and there's a lot of pent-up assets waiting to find monetizations.
05:11Even though, at the same time, you also see take private activity, right?
05:15Yeah.
05:15And you may wonder, how does it make sense to do take privates,
05:19because every day you're talking about S&P at record highs and NASDAQ at record highs.
05:25Having said that, there are some companies which are at record highs,
05:29but there's a significant part of the market which is not.
05:31They are trading at a deep discount at the 52-week high.
05:35And the scale issue, if you're a sub-$5 billion market cap company,
05:40there's a lot of companies in that space whose public market valuation doesn't reflect their true value.
05:47Well, Anu, you mentioned financial sponsors, and I hear you.
05:50They are sitting on record levels of dry powder.
05:52Yes.
05:52But private credit is consolidating, and private equity fundraising has been sluggish, to say the least.
05:57So talk to us about which sectors are going to drive the deal cycle as we look ahead to 2026.
06:02So these mispriced public securities are still an opportunity.
06:06And then another interesting trend you've seen is the partial monetization and continued ownership.
06:14And every version of that, we were talking earlier about continuation funds being one element.
06:20So this year, 20% of the sponsor monetization has been through continuation funds.
06:26And the secondary market has increased significantly to now you have several GPs who are raising secondary funds.
06:35So that's going to be a pretty interesting dynamic, right?
06:38Because earlier, there was a sense that, oh, you know, an asset that I cannot take public or I cannot sell,
06:44I may put in a continuation fund.
06:46Whereas now the dynamic has shifted to some people saying, look, this is my best asset.
06:51Why is it that I'm selling that one and keeping the rest?
06:55Maybe this is the one that I should put into a continuation fund.
06:59And the amount of money that is available in the liquidity in the secondary market is extremely high.
07:04So some very interesting dynamics happening in the broader private equity space at the same time when many of the private equity companies itself are transforming.
07:14They're all now alternative asset managers, right?
07:17They are not just in the LBO activity.
07:20In fact, for some of the large funds, LBO activity is a small slice of what it is they do.
07:26And they play across the capital structure as well.
07:29So that has changed the flavor of both deployment and monetizations.
07:35Just quickly here, Anu, next year, do you think it's going to be as great as people think in terms of so much more M&A volume than it was this year,
07:42incredible deals activity and a broadening out beyond the mega deals?
07:45So the momentum is very high.
07:47And when we look at our pipelines, both on the strategic side, as well as the sponsor side, with the number of companies that need to monetize, it's very high.
07:55Having said that, there are risks, right?
07:57We are still in the middle of several geopolitical conflicts.
08:01There has been a favorable environment, interest rate cuts, all of this that people are expecting and pricing into the market.
08:10And there is also this question of what happens with the amount of money that is going into AI.
08:17I read a very nice quote from somebody which said, you know, AI's New Year resolution is ROI.
08:24And I was like, that's about time, right?
08:26You think about what is the return on all this money that you're putting in?
08:30What should the KPIs be?
08:31How should I measure the impact and result?
08:34So there are some things that you have to watch to see if this trend will continue.
08:39But the appetite is there, interest is there, and the financing markets are there.
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