Welcome to the Lunar New Year. The year of the water tiger in China and east Asia promises much and strength and bravery will undoubtedly be much in demand in all walks of life.
Financially, too, as investors seemed to try to sell their entire portfolio last year during the unprecedented boom period for flotations (IPOs), mergers and acquisitions (M&A).
Global takeovers rocketed to nearly $5tn in 2021, according to Pitchbook’s annual global M&A report. Nearly 1,500 companies also had IPOs, including special purpose acquisition companies (Spacs), worldwide last year, raising almost $500bn.
Dealmakers remain hot for the right assets. If Microsoft’s $68bn cash deal for gaming group Activision is approved by regulators – no small if – it will be the former’s biggest acquisition ever, with a price tag higher than its last three purchases combined.
But they will have to decide if stock market falls last month presage greater challenges ahead and whether to stick or twist and try and sell the remainder now or hold on.
Corporations are hurrying to spin off assets, such as Tencent’s sales of stock in JD.com and Sea, Thyssenkrupp’s listing of its hydrogen subsidiary or LG Energy Solution, which is now South Korea’s second-most valuable firm. Shares in the electric car battery maker, spun out of conglomerate LG, jumped 68% on its trading debut last month.
The other challenge is reinvestment. Where and how to find assets remains difficult. Hedge and mutual fund investors, such as BlackRock and Tiger Global, could see the public markets’ downturn as a better buying opportunity than highly-valued private peers.
Others, however, are continuing to invest. And thesis-driven investors are building portfolios around technologies.
The big question for all is what happens to liquidity as the era of free money effectively starts coming to an end from next month as the US Federal Reserve is expected to start increasing interest rates.
The last time that the Fed raised rates and reduced its balance sheet simultaneously was four years ago in 2018.
This could put pressure on the near-1,000 private companies valued at at least $1bn (so-called unicorns) as well as those that have escaped on to the public markets in the bubble times.
Of the 133 publicly traded ex-unicorn startups that Jeffrey Funk analysed, 23 now have greater than $1bn in cumulative losses and another 36 have losses greater than $500m. A similar percentage or probably higher of unicorns are also loss-making and hence reliant on equity rounds to cover the cash burn.
Overall, however, regardless of shifts in fortune it is clear China and the US as well as practically all other countries are trying to find and unlock more of it and effect the governance and support to capture its benefits while limiting its more pernicious outcomes.
Hear how the industry will evolve:
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Webinar – 10 Feb – Find Out More & Register Now
Editor’s note: This is an extract of the February issue of Global Corporate Venturing, which will be published around the webinars next week.
