Good morning, Hubsters. MK Flynn here with today’s Wire.
On the first day of a new month, let’s begin with a little bit of encouraging news, at least in the short term.
M&A deal announcements rose in August, according to a report from S&P Global Market Intelligence that came out yesterday.
Through Aug. 19, the total value of US M&A transactions announced in the month reached $81.32 billion, exceeding both the $45.62 billion recorded in July and the $76.93 billion reached in June.
Despite the late-summer pickup, significant challenges remain.
“Dealmaking in much of 2022 has been plagued by falling equity valuations, surging inflation, rising interest rates and ongoing geopolitical uncertainty,” S&P’s Joe Mantone and Gaurang Dholakia wrote in the report. In the first half of the year, the total value of global M&A announcements dropped 26.2 percent year over year to $1.7 trillion.
“Current market conditions are taking some major players out of the M&A market,” wrote Mantone and Dholakia. “Higher interest rates and lower valuations are turning private equity firms into bystanders. Special purpose acquisition comp previously helped boost M&A and IPO activity. However, momentum from that vehicle has slowed considerably as blank-check companies have faced increased scrutiny while operating in a difficult environment. Despite headwinds, the first half of 2022 saw the announcement of a number of large M&A deals. Corporate executives continue to discuss possible transactions, but absent a significant market swing, sellers need to adjust their expectations before the M&A market sees a meaningful pickup.”
Back to school. PE Hub reporter Obey Martin Manayiti takes a look at the mixed signals for PE-backed deals in the education technology sector.
The sector has benefitted from the surge in online education during the pandemic, but as students return to classrooms, the question is whether or not the deals will keep on coming.
One sign that this may be a good time for private equity firms to sell their edtech portfolio companies came Tuesday, when Thoma Bravo announced a big exit in the sector, selling Frontline Education to Roper Technologies for $3.7 billion.
A few ill omens for edtech have appeared recently. Venture capital funding for edtech and education start-ups is down sharply from a year ago, Crunchbase News reported in August. And in September, Edmodo, a popular platform for K-12 schools, will shut down permanently.
Dealmaking activity in edtech may be waning, but it isn’t over quite yet.
Read Obey’s story for a roundup of edtech deals that PE Hub and PE Hub Europe covered this summer.
Cracking down. The Federal Trade Commission recently gave itself permission to crack down on mergers, reports Regulatory Compliance Watch’s Bill Myers.
In August, a divided Trade Commission voted, 3-2, for three omnibus resolutions that allow a single Trade Commissioner to sign off on an antitrust investigation.
In the past, a majority of Commissioners were needed traditionally to authorize what the agency calls “compulsory process.” Now, staff will have a freer hand to investigate allegations of collusion and anti-competitive mergers and acquisitions, Bill explains.
Under the Hart-Scott-Rodino Act of 1976, companies must report any mergers at or above $101 million to the FTC and the Department of Justice. Authorities at either agency can sue to block deals “in any line of commerce” if the agency thinks a proposed merger would “substantially lessen competition or tend to create a monopoly.” The Trade Commission’s newest resolution allows staff to open cases involving deals with lower price tags.
The resolutions are the latest march in the Biden Administration’s crusade against industry consolidation, Bill writes.
“They are taking lots of steps to increase the transaction costs and penalties for consolidation because they believe it’s generally a bad thing,” said Logan Breed, who helps lead Hogan Lovells’ antitrust practice from Washington.
Since the Reagan era, Washington regulators of both political parties have focused mostly (though not solely) on horizontal mergers—Coke buying Pepsi, for example. When regulators were worried that a merger could be anticompetitive, they usually tried to impose conditions—divestitures, for instance—that would fix the problem instead of suing to block the entire merger.
Under new management—Trade Commission Chairwoman Lina Khan and Jonathan Kanter at Justice’s Antitrust Division—the old orthodoxy has been tossed out the window.
“They’re willing to push the boundaries. And they’re jettisoning their previous guidelines. They’re literally deleting them in some cases,” Breed said. “Private equity transactions are getting additional scrutiny, even the ones that don’t present the classic horizontal Coke-and-Pepsi problems that mergers have traditionally stumbled over. You see the agencies going after the deals vigorously that wouldn’t traditionally have been challenged.”
As always, I’d love to hear your thoughts on all these issues. Will M&A pick up this fall, or will higher interest rates and inflation turn would-be PE buyers into bystanders? Is the federal government cramping your dealmaking style? How’s your dealflow these days? Email me at firstname.lastname@example.org.
The PE Hub team will be back with more tomorrow.
Until then, all the best,