M&A Ice Age & Elon’s Wild Man Strategy

Bret Taylor
Bret Taylor, then C.T.O. of Facebook, speaking to a Senate Commerce subcommittee. He stepped down from his role as Salesfoorce co-C.E.O. last week. Photo: Scott J. Ferrell/Congressional Quarterly/Getty Images
William D. Cohan
December 11, 2022

The dealmakers on Wall Street have had a nice long run, fueled by indifferent regulators and cheap money. These things tend to go in cycles, some longer than others, and this one has been a particularly long and lucrative ride for investment bankers. The year 2021 was a particularly notable bonanza: JPMorgan Chase, for instance, made a stunning $46.5 billion in net income, a 70 percent increase above 2020. It was obvious that between a new monetary regime at the Federal Reserve, where interest rates were increasing rapidly, and a regulatory regime that was going to be far more vigilant than it had been under Donald Trump, that the deal environment was going to change. And it has.

Aside from the Twitter debacle, there has been little M&A activity of note this year. In the first seven months of 2022, global M&A deal value fell 32 percent from the same period of 2021, from $2.5 trillion to $1.7 trillion. Indeed, 2022 may be notable only for Elon’s ghastly Twitter deal, and as the year that other mega-deals either fell apart because of regulatory actions, such as the Penguin Random House deal for Simon & Schuster, or seemed destined to fall apart, such as Microsoft’s proposed acquisition of Activision Blizzard, Meta’s proposed acquisition of Within, the virtual reality company, or Amazon’s proposed acquisition of Roomba. 

And this is becoming costly, too. For instance, in addition to the millions in legal fees that, say, Penguin Random House spent fighting the Federal Trade Commission, it also had to pay a termination fee of $200 million to Simon & Schuster. Markus Dohle, its C.E.O., recently turned in his resignation, effective at the end of 2022. Microsoft will have to pay Activision Blizzard a whopping $3 billion if the F.T.C. prevails in blocking the acquisition. Meanwhile, Illumina’s proposed re-acquisition of Grail, as I’ve written about here before, just suffered another setback from regulators in the European Union. Nothing is easy these days for M&A bankers. And when you combine the tougher regulatory environment with higher interest rates and lower stock prices, let’s just say the M&A chill is real and not thawing anytime soon.