The world’s dealmakers are roughly $1 trillion down in one of the worst years for takeovers and stock market listings in a decade.

That’s the year-on-year drop in the value of mergers and acquisitions and initial public offerings in the first half, a period in which inflationary pressures, financing constraints and geopolitical tensions nixed activity across regions and sectors.

And with the traditional summer lull on the doorstep, and fears of a recession lingering, the next six months could bring more pain on Wall Street, where banks have already been slashing bonuses and jobs in response to the slump.

“Deals are being delayed,” said Dominic Lester, head of investment banking for Europe, the Middle East and Africa at Jefferies Financial Group Inc. “Boards are having difficulty valuing assets, and are therefore taking longer to commit to transactions.”

Deal volumes are down 42% year-on-year at $1.3 trillion, according to data compiled by Bloomberg. Excluding Covid-impacted 2020, that’s the smallest first-half total in a decade and below the average for the period.

Private equity buyouts are flagging because of the lack of cheap debt and disagreements with sellers over price.

“Many investment banks have constrained their ability to provide debt financing, and alternative sources of debt financing are quite expensive by comparison,” said Lester.

Strategic buyers have yet to pick up the slack, having found the path to takeovers complicated by increasing government intervention.

In the last six weeks, tens of billions of dollars worth of M&A has either stalled or collapsed, ranging from the $10 billion tie-up of satellite operators SES SA and Intelsat SA, to Citigroup Inc.’s $7 billion sale of its Mexican unit. Other pending deals, including Microsoft Corp.’s $69 billion takeover of games maker Activision Blizzard Inc., face being scotched by antitrust authorities.

Public Pains

Things are little improved in the market for new listings, with companies having raised just $68 billion via IPOs in the opening six months of 2023, Bloomberg-compiled data show. That’s down more than a third year-on-year, with only 2016 having seen a lower first-half total since the global financial crisis.

The forces dragging down listings are much the same as those for M&A: concerns about a global economic slowdown and a mismatch in pricing expectations between companies and investors.

“The elephant in the room really is that we are expecting a recession. The timing of that recession is challenging and it will be largely consumer-led,” said Stephanie Niven, a London-based portfolio manager at investment firm Ninety One. “That’s why investors are cautious. The market itself hasn’t exactly priced a recession.”

Poor performance from some of the year’s high-profile IPOs, including German web hosting group Ionos SE and Italian gambling firm Lottomatica Group SpA, hasn’t helped things. Earlier in June, WE Soda, the world’s largest producer of natural soda ash, blamed “extreme investor caution” for a decision to cancel its London IPO.

“What we need for the IPO market to reopen is for 10-15 deals to trade well,” said Thorsten Pauli, head of equity capital markets for Germany, Austria and Switzerland at Bank of America Corp. “We are seeing a resurgence of preparation for 2024 deals but issuers have to be reasonable on valuation.”

The gloom is a far cry from the record breaking $5 trillion-plus year of 2021 and the decade that preceded it — a period in which low interest rates powered private equity buyouts and soaring stock prices encouraged companies to list new shares.

Still, there have been some positives in 2023.

Drugmakers’ pursuit of new treatments for rare diseases and the shift to cleaner forms of energy continue to fuel deals across health-care and commodities. The two biggest M&A transactions announced this year have been Pfizer Inc.’s planned $43 billion takeover of cancer-drug maker Seagen Inc., and gold giant Newmont Corp. A$28.8 billion ($19.1 billion) purchase of Australian rival Newcrest Mining Ltd.

“In volatile markets, size does matter,” said Hernan Cristerna, global chairman of M&A at JPMorgan Chase & Co. “Deals that make clear industrial logic, from companies in the old economy, with positive cash flows, make a lot of sense.”

Meanwhile, the Middle East’s cash-rich sovereign wealth funds are still scouring the globe for acquisitions to build national champions and increase the region’s influence. Saudi Arabia’s Public Investment Fund has a deal list that covers everything from airplanes to golf stars, while Qatar Investment Authority is moving beyond its traditional hunting grounds in Europe.

“There continue to be quite a lot of M&A activities coming out from the Middle East,” said Robin Rousseau, Citigroup’s co-head of EMEA M&A. “Many of these countries are not only just interested in making financial investments, they are eager to build strategic champions.”

Go East

For equity capital markets bankers, brights spot have been found in the east, with China accounting for roughly half the money raised via IPOs this year. The country has cut curbs on local companies seeking listings overseas and made rule changes to encourage more at home. Seed giant Syngenta Group this month won exchange approval for its 65 billion yuan ($9 billion) IPO, moving the world’s biggest potential listing this year a step closer to completion.

State-backed listings in the Middle East continue to be a draw. Abu Dhabi has dominated listing activity in the Persian Gulf, mainly thanks to the oversubscribed IPOs of Abu Dhabi National Oil Co.’s gas and maritime logistics businesses.

In Europe, companies focused on energy transition, such as Thyssenkrupp AG’s Nucera hydrogen unit, are finding enough favor among investors to proceed to market with confidence, while carveouts and spinoffs are helping fill the void in the US. In May, Johnson & Johnson’s consumer health business Kenvue Inc. sealed the biggest US listing since 2021.

“The next six months of 2023 will definitely have some IPOs, the market is not closed and good companies can always get out,” said Mike Bellin, partner and IPO services leader at PricewaterhouseCoopers LLP. “A lot of the companies we’re talking to are thinking it’s more of a 2024 timeframe.”

Bank Cuts

But these wins haven’t been enough to prevent Wall Street firms from taking drastic action in response to the broader drop in deal volumes.

JPMorgan, Citigroup, Goldman Sachs Group Inc. and Morgan Stanley are among those to have embarked on redundancy rounds across their investment banking divisions this year, while M&A specialists like Lazard Ltd. are also shrinking workforces.

The cuts are affecting staff ranging in rank from managing directors to junior employees. While some banks are looking to hire selectively to pick up talent leaving rivals, those being made redundant could find the job market challenging.

“A lot of people will go for some sort of downgrade in brand and compensation,” said Genevieve Fraser, partner at global recruitment firm Maven Search. “Junior MDs, those with two-three years of experience and are still building out their client list, will have a harder time finding a home.”

(Adds Lester quote in seventh paragraph. An earlier version of this story corrected a JPMorgan executive’s title in 18th paragraph.)