*

Global deal volumes grew 3.7% to $769 bln in Q2 -Dealogic

*

US volumes down 3% but Europe up 27% during Q2

*

Bankers seeing slowdown in 'megadeals' above $25 bln

By Anirban Sen and Anousha Sakoui

NEW YORK/LONDON, June 28 (Reuters) - Global mergers and

acquisitions (M&A) activity grew at a sluggish pace in the

second quarter, yet many dealmakers are upbeat, forecasting

transactions will pick up in the second half of 2024.

Stubbornly high interest rates, a hostile regulatory

environment and a frothy stock market that has made valuations

pricey weighed on dealmaking in the last three months.

The number of deals signed globally in the second quarter

fell 21% to 7,949, according to data from Dealogic. Deal volumes

grew 3.7% to $769.1 billion. The number worth $10 billion or

more fell to six during the quarter, from eight in the year-ago

period.

Top investment bankers and deal lawyers brushed off concerns

about the health of the M&A market, saying their pipelines were

in robust shape going into the latter half of the year.

"It just feels like a regular old M&A year, and I think

we'll just keep cruising along," said Damien Zoubek, co-head of

U.S. corporate and M&A at Freshfields Bruckhaus Deringer. "CEO

confidence is very high and while there's a lot of geopolitical

risk going on, people feel pretty good about the economic

outlook."

Some advisers noted the rate of dealmaking has returned to

levels seen in the pre-pandemic years of 2018 and 2019, when

deal volumes averaged about $4 trillion a year.

The pace of buyout activity led by private equity firms

surged 41% to $286 billion during the first half, helped mainly

by a higher number of take-private deals, giving dealmakers

hopes of a return of large leveraged buyouts in the near term.

"The driver for the second half of the year could

potentially be a real revitalization in private equity

activity," said Jay Hofmann, co-head of M&A for North America at

JPMorgan ( JPM ). "We've had this kind of arm-wrestling match

between valuations on the one hand, and the desire to deliver

the overall returns that private equity has done over the last

10-12 years. And on the other hand, there is the DPI

(distributed to paid-in capital) demand from limited partners,

and it seems pretty clear that DPI is going to win."

U.S. M&A volumes were down 3% during the quarter to $324.4

billion. However, deal activity in Europe rebounded and jumped

27%, driven largely by the value of some large transactions.

Asia-Pacific deal volumes fell 18%.

"We have seen Europe bounce back this quarter - and that is

because Europe continues to offer attractive valuations, the

rate environment is moderating and the macro backdrop is

improving, although the recent increase in political uncertainty

needs to be navigated," said Cathal Deasy, global co-head of

investment banking at Barclays ( JJCTF ).

Driving the recovery of private equity dealmaking has been

the increased availability of capital due to the burgeoning

business of private credit, which is increasingly grabbing

market share away from traditional bank loans.

"Private credit funds are going to continue to play a

material and probably growing role in the financing markets -

but the banks will also continue to play a role," said Dan

Mendelow, co-head of U.S. investment banking at Evercore ( EVR )

. "Banks have begun to either partner with private credit

funds or they are raising their own funds so that they can have

that same product capability."

ConocoPhillips' ( COP ) $22.5 billion takeover of Marathon

Oil ( MRO ), Silver Lake's $13 billion take-private of Endeavor Group

Holdings ( EDR ) and Johnson & Johnson's ( JNJ ) $13 billion

acquisition of Shockwave Medical ranked as the largest deals of

the quarter.

"The growth rates in the U.S. continue to be more attractive

than most other places in the Western world, and the U.S.

capital markets are deeper than anywhere else. So if you're a

U.S. corporate, the bar to investing outside the U.S. has gotten

higher," said Jim Langston, an M&A partner at Paul, Weiss,

Rifkind, Wharton & Garrison.

While large deal activity remained at healthy levels,

bankers pointed out the number of so-called "megadeals", or

those worth more than $25 billion, has slowed down compared to

previous M&A cycles due to heightened antitrust scrutiny.

GAP NARROWING

Top M&A rainmakers said they are starting to see early signs

of a narrowing in the gap in valuation expectations between

buyers and sellers.

"We are getting closer to a more normalized M&A market as

agreement on price gets easier in an environment with an

expected downward trajectory on interest rates, a solid economic

outlook and low volatility," said Eamon Brabazon, co-head of M&A

for Europe, Middle East and Africa at Bank of America ( BAC ).

The world's biggest corporations, armed with big balance

sheets, are still pushing ahead with their pursuit of sizable

targets, deal advisers said, adding upcoming elections in the

U.S. and other parts of the world so far had no impact on talks

between buyers and sellers.

In Europe, miner BHP's failed $49 billion bid for

Anglo American was a sign of a resurgent acquisition

drive.

"People are more comfortable with where the world is right

now," said Andre Kelleners, head of EMEA M&A at Goldman Sachs ( GS )

. "There's a huge move into risk assets more broadly in

the markets, but you can also feel that corporate psychology is

one that looks at the world as more resilient, more predictable,

less volatile, less uncertain than it was 12 to 18 months ago."

While overall activity levels were sluggish during the

quarter, so-called corporate clarity deals - or structured M&A

deals that include spin-offs and carve-outs - proved to be a

bright spot for dealmakers.

"We've seen a growing number of companies that are

considering and pursuing carve-out type transactions for a spin

off or sale - there's a lot of appeal to separating non-core or

low-growth businesses," said Allison Schneirov, a global head of

Skadden's transactions practice. "In that way, companies can

retain flexibility during the transaction process and entertain

third party bids."