00:00All there was talking about this idea of deja vu that we keep entering the year really bullish
00:04and then volatility crops up and it starts to stymie things. I know you and the team had pointed
00:09out in your year ahead research that last year M&A volume rose 40 percent in 2025. Can we repeat
00:17that in 2026 when you have worries about war software everything else out there? Sure. Well
00:23it's it's the long term short term question right. So so last year there are some similarities
00:27because I think all the practitioners started the year pretty optimistic and then in the
00:31second quarter we had two months of tariff uncertainty. But we ended the year with over
00:36five trillion of M&A which was the second best year on record. It was up 40 percent globally
00:41and I would say there were a number of trends that we saw last year that will carry we think
00:45are long-term durable trends that will carry forward. So the first is the strategic ambition
00:51of large corporates. So deals over 10 billion dollars. Those were up 120 percent. They were
00:56fully 30 percent of the M&A market and we think that's a trend that's going to continue. The
01:01second trend is the simplification of middle sized companies portfolios. So how do they
01:07get rid of the stuff that isn't growing and how do they align their portfolios with long
01:11term secular growth trends. So that's and then the final trend that we saw and that that
01:16was up 50 percent last year. And the final trend is just take privates of smaller companies
01:21that don't have scale or don't have enough scale to compete or other otherwise unstable. So we
01:26think all three of those trends will continue. So when I look to this year M&A is actually up
01:3110 percent overall
01:32this year. North America is up 10. Europe's up 50. The rest of the world's up 100 probably and Asia
01:40Pacific's down a third. But when I look at two of those three trends the large deals those are up
01:46over
01:46last year through the middle of the month both in terms of number of deals and the aggregate market value
01:51and the same thing with the price to take private. So what we have is a lot of uncertainty around
01:57the
01:57Iran conflict. And I think the key question is for how long will it last. What's the duration. And so
02:02that's
02:03that's what everyone's watching is is how long will it last. So if it's only a few more weeks or
02:07another month
02:08let's say David Miracle was saying that he doesn't think it's going to have a meaningful impact on U.S.
02:16inflation. Would you say the same is true for M&A. If it's just another few weeks or another month
02:22you know the
02:22conflict in total last seven to eight weeks. That's OK. I think that's right. People are watching you know oil
02:28price
02:29impact on inflation. They're watching the supply chain for non-energy impact on inflation. But if it's just another couple
02:35of
02:35weeks the long term strategic conversations are ongoing. So I think this will affect when deals are announced but not
02:42whether or not deals get done.
02:43We have though seen I mean one of the longer term trends is this unknown anxiety over AI. There have
02:48been IPOs that have been
02:50pulled because of concerns about how software related stocks might behave in the market. What are you seeing in deal
02:56flow when
02:56it comes to the tech sector. So last year was an incredible year for software M&A. And then early
03:03this year late last year
03:05AI put into question what's the terminal value of a lot of these software investments. We saw the public markets
03:11really almost
03:11indiscriminately take software down. Just just broad brush. I think the private markets are a little bit more discerning.
03:18It's almost company by company. So they're really looking carefully. But what what it as it relates to M&A
03:24the public
03:25company bids are much lower than they were. And the private equity bids are lower still. So this is going
03:31to take a while to
03:32sort out because it is a complicated question about what's the terminal value of these businesses. And then you add
03:37leverage to the
03:37equation. So leverage in choppy markets leverage amplifies returns both up and down. So I think software is going to
03:44take a little bit to sort through. And I think it will have significant impacts on that particular sector of
03:50M&A. You know I
03:51always look at the MA go page on the Bloomberg terminal. And if you click on the time series tab
03:58you can see both the value of
04:01transactions as well as the number of transactions. And I wonder if the AI disruption you know changes the price
04:08of the
04:08asset but maybe increases the number of assets that get sold because more companies will be distressed.
04:14Yeah. And it depends on what part of AI. So there's there's a whole bunch of activity around the infrastructure
04:20needed for AI. So like
04:21anything around the data center cooling that all those companies those transactions are taking place at pace.
04:27There will be more AI transactions that are AI specific. Last year there weren't an incredible amount of
04:34those. Those are ramping up quite quickly. But I think AI is going to have really positive effects in
04:39certain areas. And it will have more dilutive effects in others as you think through the individual value
04:44of companies that are that are. I just mean some software companies all of a sudden they don't have the
04:48pricing power they thought to in terms of you know ARR right. So now it's a better looking like a
04:54much
04:55better option to sell to a bigger competitor. That's right. But but the terminal values in question. So for sure.
05:00Is that what
05:00pressure. And if it's private equity. How does that price relate to what we paid for it. And what's the
05:06equity value.
05:06Especially if they paid in 2021 and paid punch evaluations for it. One of one of the things I mean
05:11tangential to this is private credit going through this moment of questions around their software exposure. What have you
05:15given that this is just part of the engine of deal making and financing for deals. What does it do
05:20when these questions are being
05:22raised. And maybe you have private credit players themselves pulling back a little bit. Are you seeing
05:27any of that. What is that doing to the entirety of the universe. Well I think there's two perspectives
05:32on private credit. One is if I had a portfolio of those loans what are they worth. That's not how
05:36we're
05:37thinking about it right. We're thinking about how does it finance deals to your question. And I think in
05:41terms of financing deals you know there's there's the traditional public market and then there's the
05:45private market. And I think clients are best served to run a dual track and look at both
05:50simultaneously. Credit is available in both markets. It's more expensive than it than it was it. And I
05:57think people are going to really focus on the underwriting standards in a way that maybe they
06:01didn't you know the year before. But I think credit for for deals and particularly investment grade
06:05will be available and we'll be able to get deals done. What happens to non-investment grade then.
06:11Are you going to see a maybe not freezing but a slight icing over. I think of the market. I
06:15think you're
06:16going to see a real focus on underwriting standards. And I think that good companies will get
06:19financed and the the mediocre companies will will probably have more trouble getting
06:24financed. Frosty. Maybe that's a healthy thing. I think it's binary depending on really on the
06:30enterprise that we're talking about.
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