Higher yields knock a third off quarterly dealmaking

Global mergers and acquisitions cooled sharply in the third quarter. LSEG data reported by Reuters put announced deal value for July to September at $993bn, 41% below the second quarter and the first quarterly total under $1tn since the second quarter of 2025. The slowdown coincided with a sell-off in government bonds: the 10-year US Treasury yield reached 5.34% on 1 October, its highest level since 2002, after the largest quarterly rise this century.

The drop matters because it interrupts what had been on course to be one of the strongest years for dealmaking on record. Year-to-date value still stands at $3.9tn, up 28% and the highest for the period since 2001, according to LSEG. Bankers interviewed by Reuters described the quarter as a pause after an exceptional spring rather than a turning point, but the cost of debt is now the variable that will decide whether that reading holds.

Fewer megadeals, fewer deals

Most of the quarterly decline came from the top of the market. LSEG counted ten transactions above $10bn in the third quarter, down from 26 in the second and the lowest number since the fourth quarter of 2024. Among them were Banca Monte dei Paschi's $32bn bid for Banco BPM and Gold Fields' approach for Northern Star Resources, which Reuters valued at $25.7bn. Northern Star's board rejected the cash-and-share proposal as opportunistic, and CNBC reported that its implied value had already fallen from A$38.7bn to A$36.1bn as Gold Fields' own shares slipped, a reminder of how volatile equity currencies complicate large stock-funded bids.

Deal count was weaker still. LSEG recorded an 8% fall in the number of transactions so far this year, taking volumes to levels last seen in 2020. Mergermarket's figures tell a similar story with different totals: $4.44tn of announced volume in the first nine months, up 27% and close to the 2021 record of $4.55tn for the period, alongside a 1% decline in deal count to 32,419. Transactions of $10bn or more made up a record 35% of Mergermarket's total.

Rates are the main pressure point

Reuters linked the rise in yields to energy-driven inflation and to expectations that interest rates will settle higher than previously assumed, even as investment in artificial intelligence and data centres supports growth forecasts. Yields kept climbing after quarter-end. CNBC reported that the 10-year touched 5.349% on 5 October, the highest since April 2002, while the 30-year bond briefly reached 5.703%.

Higher yields raise the cost of acquisition debt and reduce the present value of a target's future cash flows, which tends to widen the gap between what sellers expect and what buyers can justify. John Collins, Morgan Stanley's global head of M&A, told Reuters that higher yields can make valuations "a little tougher" at the margin, but said the effect was hard to quantify and he was not ready to call a slowdown.

Where activity is holding up

The regional picture was uneven. US and European dealmaking fell sharply in the quarter, while Asia-Pacific M&A reached $242bn, 8% above the second quarter and 36% higher than a year earlier. On a year-to-date basis, LSEG data compiled by Investment Executive show the US still accounting for more than half of global value at $2tn, up 38%, with Europe up 54% and technology the largest sector at 22% of the total.

Cross-border transactions are up 32% so far this year. JPMorgan's global head of M&A, Charlie Bouckaert, pointed to US companies looking at European acquisitions on the back of a strong dollar, and to buyers elsewhere seeking exposure to US growth. Schneider Electric's agreement on 5 October to buy PTC for $205 a share in cash fits the second pattern. InsideArbitrage reported that the French group is funding the roughly €22bn payment with a bridge loan, to be refinanced with €5bn to €6bn of new shares and €16bn to €17bn of debt, a sizeable call on bond markets while yields are rising.

What to watch in the fourth quarter

Advisers remain broadly constructive. Goldman Sachs' Carsten Woehrn said boards feel more urgency to complete strategic transactions and that full-year value could pass the 2021 peak if the current pace continues, while Clifford Chance's Sarah Jones called the third quarter "a normalization rather than an end of a cycle". Equity markets are also supplying acquisition currency: IPOs excluding SPACs have raised $215bn globally this year, the most since 2021.

The risks are nonetheless visible. Some bankers reported more caution among investors around technology and AI-related deals, and several IPOs have been delayed as rates rose. If long-term yields stay at current levels, the final quarter is likely to favour well-capitalised strategic buyers over leveraged bidders, and large share-funded offers will remain exposed to swings in the acquirer's own stock price.