Rate Uncertainty Is Holding Back M&A Deals, Goldman’s Minnis Says

By Pune Media On Feb 14, 2025 33

(Bloomberg) — The long-awaited uptick in mergers and acquisitions is still being held back by uncertainty over the direction of interest rates, even as corporate borrowers have access to cheaper financing, according to Goldman Sachs Group Inc.’s global head of credit and asset finance.

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Recent signs of stubborn inflation in the US have created doubts about how soon the Federal Reserve can ease monetary policy. Interest rates, which impact corporate earnings and company valuations, can determine how eager buyers and sellers are to pursue M&A deals, Christina Minnis, a partner at Goldman Sachs, said on Bloomberg TV.

If rates were to stay elevated for longer “that has a direct correlation on valuation. That is a challenging element,” Minnis said. “Sellers would be hoping for relief on rates.”

Earlier this week, data showed US inflation making its biggest monthly gain in more than a year, pushing the annual rate to 3%, and raising doubts about imminent Fed rate cuts. Conversely, a slump in US retail sales on Thursday pointed to softness in the consumer economy.

Despite the uncertainty over the rate outlook, sanguine credit markets have enabled borrowers to reprice debt and fund acquisitions at cheaper rates, Minnis said.

“We had five leveraged buyouts print in January at SOFR+300 or better,” she said, referring to the leveraged loan benchmark known as the Secured Overnight Financing Rate. “If you look back over a decade, only 13 LBOs have hit that spread. It tells you this is a good tone to finance sponsors.”

For example, health care data platform Cotiviti raised $2 billion in incremental loans to finance its acquisition of peer Edifecs. The company, backed by KKR & Co., paid 2.75% over the benchmark.

Minnis, whose team led the financing for Cotiviti, said uncertainty over the direction of interest rates could scupper the potential for M&A activity to pick up.

“If we get a read in February where the inflation is where we do not want to see it, a tightening cycle would be hard to absorb,” she said.