Capital Markets Rebound as IPOs Surge, M&A Gains Momentum

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Capital markets activity in the second quarter showed signs of a gradual recovery, despite a slowdown in global merger and acquisition (M&A) announcements. UBS Securities highlighted this in a note sent on Tuesday via email.

During the June quarter, global equity capital market volumes for brokers within UBS’ coverage increased by 21% sequentially and surged 41% on an annual basis. Goldman Sachs and Morgan Stanley notably experienced annual growth of 48% and 51%, respectively. However, broker debt capital market volumes saw a 31% decline from the previous quarter, though they still posted a 12% increase compared to the same period last year.

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The early months of 2024 had a strong performance, but global M&A announcements dipped 8% from the first quarter. On an annual basis, however, there was a 5% rise in the second quarter as the deal markets showed signs of recovery from a challenging previous year. Financial sponsors made up 31% of the announcement volumes during this period, up from 20% in the first quarter. The transactions appeared to be on a larger scale, with the average deal size increasing 30% year over year.

US initial public offering volumes year-to-date showed an impressive climb of over 55% compared to the previous year. Additionally, the issuance of leveraged loans rose by approximately 60%.

UBS expressed a preference for Goldman Sachs over Morgan Stanley, citing Goldman’s stronger leverage in a resurgence of capital markets activity and its recent track record of wallet share gains in its trading operations. These could potentially outperform in a prolonged high-rate environment.

Public volume completions for M&A boutiques generally increased in the second quarter. Despite sequential drops for Lazard and Moelis, other firms such as PJT Partners, Houlihan Lokey, and Evercore saw gains.

According to UBS, M&A boutiques have experienced a steady replenishment in their public pipelines throughout the year. With financing options readily available and potential rate cuts on the horizon, UBS anticipates that sponsor announcements will continue to gain momentum through the latter half of 2024. This trend is expected to benefit boutiques, particularly those with significant exposure to financial sponsors.

Among wealth managers, UBS showed a preference for Charles Schwab and Interactive Brokers Group.

In the area of trust banks, which are asset-sensitive as they enter a rate-cutting cycle, UBS continues to favor Bank of New York Mellon. This preference is based on BNY Mellon’s multiyear targets and strategic management plan. In contrast, recent updates have flagged concerns about Northern Trust’s capacity to meet its expense outlook, while State Street faces challenges related to non-interest bearing deposits and offsetting fee revenue headwinds.

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Santiago Contreras has a degree in economic journalism from the Universidad de los Andes in Venezuela. He also has a master's degree in communication in organizations from the Complutense University of Madrid. In his extensive professional experience, he has practiced journalism for more than 25 years in audiovisual and print media, as a journalist, editor and editor-in-chief. He was a professor of journalism, advertising and marketing at the Universidad de los Andes. Currently, he combines his journalistic practice with his work as a professional writer and communication consultant.