Tatton Teaser

Posted 17 April 2024

Once Wed, Now Divided: Why M&A Deals and the ACWI Are Decoupling

The relationship between the MSCI All Country World Index (ACWI) and Merger and Acquisition (M&A) activity is well known. A rising ACWI, reflecting a bullish stock market, often coincides with a surge in M&A deals To some surprise, however, over the last two years this correlation has broken.

Historically, a strong ACWI signalled a buoyant market environment, which makes M&A deals more attractive. With inflated stock prices, companies could use their shares as currency for acquisitions –  a more enticing option than cash. Further, low-interest rates meant cheap borrowing for acquisitions, further fuelling dealmaking activity.

But, over the past two years, despite a healthy ACWI, M&A activity hasn’t followed suit.

Why? Interest rates, increased regulatory scrutiny to ensure competition, ‘true valuations’ and the geopolitical climate all combine to slow deal flow. The breakdown in the M&A-ACWI correlation highlights the evolving dynamics of the financial landscape. While the stock market may still be a good indicator of overall economic health, it no longer provides a foolproof signal for M&A activity.

This decoupling presents both challenges and opportunities. For companies, it may necessitate a more creative approach to deal structuring and demonstrating true value. For investors, it underscores the importance of in-depth research beyond just the headline index performance and a focus on the underlying fundamentals of potential acquisition targets. The future relationship between the ACWI and M&A activity remains to be seen, but one thing is certain: in an era of higher rates, scrutiny and security, the old rules no longer apply.

Thank you Anthony Graham for the analysis.

Subscribe to the Tatton Weekly Email

Get the latest news from Tatton HQ directly into your inbox every week. Packed with industry insights, our weekly mailing will keep you informed on the latest news from Tatton and beyond.

You can unsubscribe at any time by clicking the link in the footer of our emails. For information about our privacy practices, please click here.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp’s privacy practices here.

Important notice:

The Tatton Weekly is provided for information purposes only and compiled from sources believed to be correct but cannot be guaranteed.  It should not be construed as an offer, or a solicitation of an offer, to buy or sell an investment or any related financial instruments. Any opinions, forecasts or estimates constitute a judgement as at the date of publication and do not necessarily reflect the views held throughout Tatton Investment Management Limited (Tatton). The Tatton Weekly has not been prepared in accordance with legal requirements designed to promote independent investment research. Retail investors should seek their own financial, tax, legal and regulatory advice regarding the appropriateness or otherwise of investing in any investment strategies and should understand that past performance is not a guide to future performance and the value of any investments may fall as well as rise and you may get back less than you invested.

Any reader of the Tatton Weekly should not use it as a guide or form the basis of a decision relating to the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of investors' own judgement or the recommendations of a professional financial adviser. The data used in producing the Tatton Weekly is for your personal use and must not be reproduced or shared.

Please select all the ways you would like to hear from Tatton Investment Management: