Global M&A activity on track to eclipse 2021 deal boom, Morgan Stanley says

By Manya Saini

July 9 (Reuters) - Morgan Stanley expects global mergers and acquisitions activity to hit a record $6.4 trillion in 2026, overshadowing the levels seen in 2021 as buoyant equity markets and renewed corporate confidence set off a flurry of transactions.

The projection points to a broad-based revival in global dealmaking after years of high interest rates and market volatility kept executives on the sidelines.

Although the Middle East conflict and fears of AI-driven disruption weighed on sentiment earlier this year, Wall Street appears to have largely brushed aside those worries.

Morgan Stanley said momentum picked up in the second quarter, with announced deals surging more than 64% from a year earlier, led by software, utilities, energy and healthcare. Deal completions climbed more than 33%.

Companies have also been encouraged by signs that regulators under the Trump administration are more receptive to large deals, easing concerns that aggressive antitrust enforcement could derail transactions.

"In line with our expectations ahead of the 2024 election, the Trump administration has pursued a lighter-touch regulatory regime, albeit with important nuances under the surface," Morgan Stanley analysts said in a note to clients. "That means the M&A backdrop has become more constructive."

The brokerage expects deal opportunities to expand as geopolitical uncertainty recedes, prompting companies to reshape businesses while private-equity sponsors put their dry powder to work.

Morgan Stanley estimates that alternative asset managers are sitting on about $4.3 trillion of capital available for deals. Sponsor-backed M&A announcements rose more than 10% in the second quarter.

Potential interest-rate hikes, it said, remain a key risk to its M&A outlook, but the current M&A wave has proven largely resilient.

Higher borrowing costs typically dampen acquisition activity by raising financing costs and making leveraged buyouts harder to execute.

Next week's second-quarter earnings from largest U.S. banks will offer investors fresh insight into the dealmaking outlook as well as debt and equity issuance.

(Reporting by Manya Saini in Bengaluru; Editing by Shilpi Majumdar)