00:00Dealmakers are navigating a volatile backdrop as the war in Iran continues to cloud the global economic outlook.
00:05I spoke with Gareth McCartney, UBS, Global Head of Capital Markets Origination, about the potential impact on M&A.
00:12When we came into 2026, we were expecting actually a very strong pipeline and a significant pickup in volumes.
00:19I think prior to the geopolitical concerns, that's exactly what we've seen.
00:22We've got back to the five-year average. We're running up roughly 40 percent year on year.
00:27So I think strategically, we've got an investor base that's engaged in deals, and we've got corporates looking to be
00:33active.
00:34So I think the setup's pretty good, but you're right.
00:36The recent events have effectively pressed pause, but I think it's too early yet to see the real outcome.
00:41What happens if that pause lasts for longer, though?
00:44You and I were talking in the commercial break, this idea that private equity has aging assets that they have
00:48to sell.
00:49What happens if we just enter an era of more can-kicking?
00:52So I think one theme that has been very helpful to offset that this year is that fewer deals, but
00:58larger and more strategic.
01:00And therefore, if I look globally here in the U.S. at the pipeline, there's a group of big tech
01:06assets that could come in the second half of this year,
01:09which I think are really in their own ecosystem.
01:11So I think they will have an opportunity to come almost irrespective of the market backdrop.
01:16If you look to Europe, I think there's some themes, whether it's defense, infrastructure spending, and maybe fintech, that, again,
01:22are slightly insulated for broader trends.
01:24But I think there's no doubt if this is elongated and if fundamentally it has a big impact on interest
01:30rates,
01:30and we see interest rates potentially rise to offset inflation threats, I think that would clearly be a major challenge
01:35for our market.
01:36By the way, for those big tech ones, so, you know, SpaceX, OpenAI's of the world, is there anything that
01:40can derail them?
01:41Or when you're an IPO of that size and you've been working on it for long enough, are you just
01:46inevitably going to enlist?
01:47Are you going to be able to find a window?
01:48Or is there something, if volatility gets bad enough, that could set them back?
01:52I think it becomes a tactical decision.
01:54Do you want to execute in that type of environment?
01:57And maybe there's a price to pay in terms of valuation.
01:59But I think just given how sophisticated the underlying investors are, even in private, in those businesses, I think they
02:07really can pick and choose their window.
02:09What about software-related businesses?
02:10We saw some IPOs tabled to start the year.
02:13Blackstone had one.
02:14Is there still some hesitancy that if you're a business that is susceptible to any AI disruption, that maybe you
02:19rethink your plans?
02:20I think that's right.
02:21Look, there's some key characteristics of those businesses that investors like.
02:26We have seen public markets react very quickly to the AI threat and have sold off their public holdings.
02:33That's had an impact on value and, by definition, has pushed out the pipeline.
02:37I think the challenge is we're going to need to see, I think, a few more quarters of numbers come
02:42through to validate the business case.
02:44I think we'll get that because I think the AI risk is further out.
02:47And then I think we'll need to take stock at that point and see what public appetite is like.
02:51But there's no doubt that their public price action is causing a pause in terms of the pipeline in that
02:57space.
02:58And that's some of the equity capital markets.
02:59When it comes to debt, there have been some interesting things going on.
03:03JP Morgan, for example, they had to change what the debt looked like in their offering for the EA LBO.
03:09There was some pushback on a recent debt package they were bringing for private equity buyout.
03:14What's going on in debt markets?
03:15Because there's a lot of demand for debt at this moment.
03:17But there seems to be just, like, touches of indigestion in certain places.
03:21Yeah, absolutely.
03:21I think they're not immune from the software theme we've just discussed.
03:25We've had a market at the beginning of this year that's been very active, deep and liquid and attractive terms
03:30for issuers.
03:31And, again, I think we're just going through the, similar to the equity markets, a pause.
03:35And we need to see the real impact on rates and where that comes.
03:38And, therefore, I think if people have to be tactical and come, they're coming and restructuring and adjusting in price
03:43terms.
03:43But I think if you're more strategic, then I think we're waiting and we'll see where this settles in the
03:47next couple of weeks.
03:48By the way, do any of the wobbles, I guess we'll call it, in private credit impact any of the
03:52broadly syndicate?
03:53Is there any trickle down to that?
03:54Yeah, I think private credit is more of an indicator than a direct impact.
03:58It feels unlikely to be systemic at this point.
04:01So, again, a small impact, but I think not a major impact at this point.
04:05We need to see that play out over time.
04:07And I think, really, from an investor-based perspective, it was interesting, even in this pickup and volatility, we've seen
04:13some of the financings we were expecting or the big selldowns we were expecting have actually come.
04:18We did, you know, two $5 billion-plus placings in Europe over the last couple of weeks in the midst
04:23of all of this that were well-received by investors.
04:25And I think debt investors are under a similar mindset.
04:28They're looking to be opportunistic, but unless they really have to commit, then they'll maybe pause for a little bit.
04:32So, what is your expectation, just to put a finer bow on things, we get back to the five-year
04:36average, so volatility in the market.
04:39What's your expectation for how the rest of 2026 shakes out?
04:41Look, I think you need to carve out these mega tech deals in the U.S. because I think they're
04:45just game changers on any metric.
04:47They're larger than anything we've ever seen before, so clearly we'll have a big impact.
04:51My expectation, aside from that, is we'll continue to see a market that remains open, that is skewed towards larger,
04:57higher-quality transactions,
04:58because I think that liquidity that it offers the investors in the secondary market gives them a little bit of
05:03comfort to offset some of the more macro challenges we're seeing.
05:07And I also think we will actually see M&A rebound and start to pick up again,
05:11and there's good appetite from public investors in debt and equity to finance and support those transactions.
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