As we had long forecast, the higher central banks raise interest rates, the lower the Merger and Acquisition trend… which hit record highs at the height of the COVID War in 2021 when interest rates sank and governments pumped in countless trillions to artificially prop up sinking economies. 

Now M&A activity has slowed to a trickle as we have continued to detail. Yet, it is important to understand that while M&A activity will continue to slow down as interest rates remain high, the worsening recession will bring a lot of revenues down, making it cheaper for the Bigs to buy out those in economic distress. This in turn will shrink the competitive landscape in many business sectors.

FIDELITY SHRUGS OFF CONTROL OF WORLDPAY FOR $11.7 BILLION

Fidelity National Information Services will sell control of its Worldpay digital payment technology to private equity firm GTCR, the Financial Times reported. 

GTCR will pay $11.7 billion in what has been described as the biggest deal in its history. 

Fidelity will retain a 45-percent stake in Worldpay and will use the cash infusion to pay down debt and buy back its own shares, the company said.

GTCR is funding half the balance of the purchase with debt, the other half with equity, the FT said. The loan has been put together by a coalition of banks including Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan, UBS, and Wells Fargo. 

The deal values Worldpay at 9.8 times its fiscal 2023 earnings before interest, tax, appreciation, and amortization, which total roughly $17.5 billion. Fidelity could collect another $1 billion based on Worldpay’s financial performance.

Fidelity bought Worldpay in 2019 at a valuation of $43 billion, intending to build a global payments processing system.

Instead, Worldpay’s market was nibbled by a string of new competitors. In February, Fidelity took a  $17.6-billion goodwill impairment charge against Worldpay, effectively acknowledging its failure.

ITALIAN INSURANCE GIANT WILL OWN U.S. ASSET MANAGER

Generali, Italy’s largest insurance company, is taking over Conning, a Connecticut-based asset manager with about $157 billion under management.

Cathay Life Insurance, Conning’s current owner, will be rewarded with a 16.75-percent stake in Generali Investments Holding Co.

The deal involved no cash and is structured as an “exchange of assets,” Generali announced, and is part of Generali’s €3-billion expansion plan.

By adding Conning, Generali now has an investment management operation that spans Asia, Europe, and the U.S. and embraces corporate and emerging market credit, fixed income, and real estate.

Acquiring Conning is “transformative” for Generali, CEO Phillippe Donnett told the Financial Times.

Under the deal, Cathay and Generali also entered into a 10-year partnership in which Generali will manage Cathay’s assets.

KERING BUYS HIGH-END PERFUME BRAND

Kering, the luxury fashion house that owns Balenciaga, Gucci, and Yves St. Laurent, among other labels, is paying €3.5 billion to acquire Creed, a perfumery whose colognes have been worn by English king George III and other European royals.

The sales figure, obtained by the Financial Times, was not disclosed publicly because “the companies did not want to broadcast Creed’s steep profit margins,” the FT said.

Creed collected revenues exceeding €250 million in this year’s first quarter, giving it earnings of $150 million before interest, taxes, amortization, and depreciation. 

Kering was willing to pay 23 times that earnings figure because of the brand’s strength and because the high-end luxury market has very few takeover targets, analysts told the FT.

Earlier this year, L’Oreal was willing to put up $2.5 billion to take over Aesop, a high-end skin care company.

Creed was founded in 1760 in London as a tailoring shop. It morphed into a fragrance company and moved to France in 1854 at the behest of Napoleon III. Private equity firm Blackrock bought a majority interest in Creed in 2020.

CANDY GIANT MARS BUYS NATURAL FOODS COMPANY

Mars Inc. will buy Kevin’s Natural Foods for $800 million, according to Reuters.

Kevin’s, based in California with 180 employees, makes ready-to-eat meals and sauces for people following keto, paleo, and gluten-free eating plans. Its products are carried in 17,000 stores in the U.S. and Canada, including at Costco, Target, and Whole Foods. 

The company was founded in 2019 by Kevin McCray, who used a paleo diet to relieve an autoimmune condition. Kevin’s has grown by double digits annually since its founding.

Mars, known for its candies, is made up of three divisions: Mars Snacking, which includes brands such as Snickers and M&Ms; Mars Pet Care, which owns brands including Royal Canin and Whiskas; and Mars Food & Nutrition, which acquired Kevin’s as part of a long-term strategy to expand in the market for health-conscious foods.

PRIVATE EQUITY FIRM BUYS CONTROL OF PRIVATE LENDER FOR $183 MILLION

Man Group, a London-based private equity firm, will pay $183 million to take a controlling interest in Varagon Capital Partners, a U.S. private credit firm. 

The acquisition extends Man’s reach into the growing market for private credit now that commercial and investment banks, and many retirement funds, have become more stringent in their lending criteria. 

Private credit is especially popular as a way to fund private equity deals and with companies too small to enter the bond market.

“As demand for [alternative] credit strategies is increasing, we see a significant growth opportunity in direct lending, particularly against the backdrop of regional banking difficulties in the U.S.,” Eric Burl, Man’s chief of global markets, said in a statement.

Varagon, founded in 2014, has made loans worth more than $24.5 billion to more than 300 companies. It specializes in lending to mid-size U.S. health care businesses, but also has funded companies in the aerospace, defense, food, and manufacturing sectors, among others.

Man is paying 1.6 times revenue for its piece of Varagon, a price that analysts at Numis said was “low, even by recent depressed private asset manager valuation standards.”