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  • Merger and acquisition activity around the world hits a new high, building on last year’s record-breaking run of deals
  • The total value of pending and completed transactions so far this year has already reached US$3.6 trillion (A$4.91 trillion)
  • That amount comes from 35,128 deals to have been unveiled this year, representing a 24 per cent jump over 2020
  • Analysts say looming tax increases on capital transactions appear to have boosted activity
  • Large buyout firms, which have built up record levels of cash, are also likely to continue the trend

Merger and acquisition activity around the world has hit a new high, building on last year’s record-breaking run of deals with the help of low interest rates and sky-high stock prices.

According to data from Refinitiv, the total value of pending and completed transactions so far this year has already reached US$3.6 trillion (A$4.91 trillion), surpassing 2020’s full-year figure of US$3.59 trillion (A$4.89 trillion).

That amount comes from 35,128 deals to have been unveiled this year, representing a 24 per cent jump over 2020.

“The M&A momentum points to a fundamentally strong market looking ahead. This pace of dealmaking could continue for the next 18-24 months, with new financing solutions and sectors driving activity,” said Andrea Guerzoni, global vice chair at Ernst & Young.

“The strong demand from private equity and the rebound in SPAC acquisitions … should support a robust deal pipeline in the near to mid-term.”

Roughly US$2.14 trillion (A$2.92 trillion) worth of mergers and acquisitions came from the United States, while Europe accounted for US$657 billion (A$895 billion) and the Asia-Pacific raked in US$620 billion (A$845 billion).

The technology sector, which typically accounts for the largest proportion of activity, continued to lead the way with US$799 billion (A$1.08 billion) in deals so far. Mergers and acquisitions within the financial services industry came to US$442 billion (A$602 billion), while industrials amounted to US$438 billion (A$597 billion).

Matthew Barbieri, partner in charge at Wiss & Company, noted that looming tax increases on capital transactions appear to have boosted activity.

“You as a seller are facing the fact that if you wait until the new tax legislation is passed, and if it does pass in the manner in which it is being presented now, you are taking a ~20% hit on your net transaction value,” he said.

One of the most notable developments this year is the rise in acquisitions by blank-check companies — special purpose acquisition companies, or SPACs — which collectively hit US$495 billion (A$675 billion) year-to-date.

SPACs are listed shell companies that raise funds to acquire a private company with the express purpose of taking it public. The listing method has proven popular among venture-funded private companies and startups, allowing them to side-step the more drawn-out process of going through an initial public offering.

Analysts say dealmaking from large buyout firms, which have built up record levels of cash, is likely to further boost merger and acquisition volumes in the near-term.

“Private equity firms have nearly $2 trillion in dry powder and there is a similar amount of cash on the balance sheets of the S&P 500,” said Jeff Black, partner at New York-based asset manager Mercer.

“Combine the financial means to do deals with the need to readjust business models to the post-pandemic world, and you’ll find organisations increasingly interested in their M&A options.”

The merger in the US between AT&T’s Warner Media and Discovery is the biggest deal of the year so far, with the enterprise value of the combined entity currently at more than US$120 billion (A$164 billion).

Australia also hit a new milestone earlier this month when Afterpay agreed to be acquired by Square Inc. in a deal worth $39 billion — the largest in the country’s history.

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