Corporate Mergers and Acquisitions, Public Offerings Fell Sharply in 2022: Report

A U.S. flag is seen outside the New York Stock Exchange on Jan. 26, 2023. Andrew Kelly/Reuters

Global equity issuance in 2022 plummeted by 66.6 percent from a year earlier to $351.76 billion, a level not seen since 2006, a new report by S&P Global Market Intelligence shows. The total value of initial public offerings (IPO) fell even more last year, down by 71.3 percent.

Corporate mergers and acquisitions (M&A) also slowed last year. The total value of global announced M&A deals fell by 35.8 percent year-over-year, to $2.983 trillion, the second-lowest annual total since 2013.

“Lower equity prices and greater volatility gave issuers little incentive to sell shares at reduced valuations,” the report reads.

Joe Mantone, the report’s author, said, “Persistent economic headwinds held back global M&A and IPO activity in 2022, and a sharp turnaround is not expected. Any signs of the Fed loosening monetary policy should benefit M&A and equity issuance.”

He said a more dovish Federal Reserve policy would likely result in a comeback in the stock market and IPO activity, while lower interest rates would improve financing conditions in mergers and acquisitions.

Steve Hanke, professor of applied economics at John Hopkins University and a former economic adviser to President Ronald Reagan, attributed the slowdown to last year’s reversal in broad money supply (M2) growth.

The Fed is responsible for the slowdown in corporate deal activity, Hanke told The Epoch Times.

“In May 2022, when the Fed announced its quantitative-tightening program, the money supply began shrinking,” he said. “By December, the three-month annualized growth rate of M2 had sunk to a stunning negative 5.4 percent.”

In a speech on Jan. 10, Fed Chair Jerome Powell said that “price stability is the bedrock of a healthy economy” but that restoring it when “inflation is this high can require measures that are not popular in the short term.”

The Fed boosted interest rates on Feb. 1 by 25 basis points, in line with market forecasts, raising the benchmark federal funds rate to a target range of 4.50 to 4.75 percent. While that was the smallest rate increase since the current quantitative-tightening cycle began in March 2022, central bank officials expect that additional increases will be required to bring inflation under control.

The Fed’s efforts to tighten financial conditions have removed a record amount of the money supply from the U.S. economy, according to Standard & Poor’s. The supply of M2 (cash, personal savings, and market accounts) fell to $21.207 trillion in December 2022 from a peak of $21.740 trillion in March 2022, as the Fed’s higher interest rates took effect.

Asset prices respond to slowing money supply growth first, followed by economic activity, Hanke said. The last to fall are prices, which can take one to two years to catch up, he noted.

“Given this transmission mechanism, we can expect a continued decline in economic activity and a recession in 2023,” he said.

Hanke also believes that Fed officials need to pay more attention to changes in M2 and its effect on the economy.

“As is always the case, the course of the economy is determined by what’s happening to the money supply,” he said.