Companies burdened by high interest rates and pushed into liquidity crises are appearing as sell-side candidates in the mergers and acquisitions (M&A) market.
On the 20th (local time), Bloomberg reported that companies which had engaged in excessive leverage (borrowing) during the decade-long ultra-low interest rate era are now facing bankruptcy risks due to the sharp interest rate hikes that began last year, leading to a flood of sell-side listings in the M&A market. As borrowing costs rise for companies that expanded their businesses with abundant liquidity during the ultra-low interest rate period, so-called 'bills of gluttony' are arriving.
According to Bloomberg, the amount of junk bonds (non-investment grade corporate bonds) maturing in 2026, issued by companies that rushed into leverage during the liquidity-rich COVID-19 pandemic, is estimated to reach about $70 billion (approximately 90 trillion KRW). These junk bonds face refinancing difficulties due to credit tightening, and refinancing costs have increased more than fourfold compared to 2021.
Recently, the French major retailer Casino Group has begun restructuring by selling stakes in two subsidiaries: GreenYellow, a renewable energy business, and Asia, a Brazilian supermarket chain. Swedish real estate company SBB, recently downgraded to junk status, is also planning asset sales due to deteriorating financial health.
Thierry Bosly, Global Co-Head of the Private Equity division at law firm White & Case, said, "With banks adopting a more conservative lending stance, funding conditions (such as maturity extensions and repayment deferrals) have become more difficult than during the pandemic."
However, the industry expects the market to improve in the second half of this year. Bank of America forecasts that the M&A market will hit bottom in the first half and begin to recover in the second half. According to Bank of America, the global M&A market size in the first half of this year was $1.4 trillion (approximately 1,803 trillion KRW), a roughly 30% decrease in deal volume compared to the same period last year. Particularly, M&A in the technology sector, which enjoyed a boom last year, plummeted by 78% year-on-year. However, sectors such as energy, healthcare, and finance are showing signs of recovery with a rebound in M&A transactions.
Kevin Brunner, Global Co-Head of M&A at the bank, stated, "There is evidence that the M&A market has bottomed out." He added, "Expectations for a soft economic landing are rising, so M&A deal volume is expected to bottom out in the first half and increase thereafter," and predicted, "For the same reason, the initial public offering (IPO) market, which suffered its worst slump since the 2008 financial crisis, will also revive."
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