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Bonds set to take centre stage in M&A financing

Debt capital markets bankers have so far watched the boom in M&A activity with a mixture of envy and anticipation. But they’re increasingly confident that a buyer-led bond boom is on the way.

Anyone considering what the impact of a pickup in M&A activity might have on the global DCM market need look no further than last year’s astonishing $49 billion eight-tranche bond take-out that backed Verizon’s purchase of Vodafone’s 45% stake in Verizon Wireless.

Gary Posternack, Barclays
 The extended
five-year trough we had from 2009 to 2013 resulted in significant pent-up strategic demand

Gary Posternack

While no one is suggesting that there is another $50 billion bond deal in the works, the M&A backlog in investment grade DCM is now that size and is being seized upon by DCM bankers as a rich source of imminent deal flow in both investment grade and high yield.

M&A has taken centre stage as a driver of supply,” says Marc Fratepietro, head of US investment grade coverage at Deutsche Bank. “M&A-driven DCM issuance was down in the first half of the year due to a lag factor and because a good number of M&A deals have been more equity-heavy. We are now seeing more debt-heavy M&A announced and see an investment-grade M&A financing backlog of at least $50 billion.”

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