When Deals Get Cold Feet: How Iran Just Became M&A's Buzzkill

Dealmakers who started the year pumped up are now watching things get messy - again. The US military operation in Iran is throwing a wrench into what was supposed to be a killer year for M&A. Second year in a row we've seen early momentum potentially fizzle before Q1 wraps.

Advisory bankers and lawyers say deal timelines are stretching out and companies are going deeper on due diligence. Deals aren't getting axed completely, but there's definitely a "pump the brakes" energy. Larry Grafstein from RBC Capital Markets nailed it: "It's quite possible that work will continue but it will be harder to get things over the finish line if we have a prolonged episode of conflict."

The numbers look rough. Deal announcements are down over 13% from last year and sitting about 25% below 2021's monster year. Fun fact: M&A typically tanks in the six months after major attacks - post-9/11, activity crashed over 20%.

The big worry is if this drags on. A drawn-out Middle East conflict could disrupt supply chains and spike energy prices. Michael Preston from Cleary Gottlieb explained the domino effect: "If this creates inflationary pressure then borrowing costs could rise, which in turn could impact financing for mega deals." Plus, market volatility has CEOs nervous about making moves. Adam Katz from Irenic Capital pointed out the irony: "time is risk and there is no reason to believe opportunities available today will necessarily be available tomorrow."

This feels familiar. Remember early 2025 when Trump's "Liberation Day" tariffs basically froze everything? Scott Nuttall from KKR noted "definitely a déjà vu element" but cautioned: "this could have more duration to it." So is this a quick hiccup or something longer?

Silver lining - big deals are still happening. Devon Energy is scooping up Coterra for $21.4 billion, and AES Corp. got bought for $10.7 billion this week. When the fit is right, companies still pull the trigger.

Real talk: fundamentals supporting M&A are still solid. Companies can access financing at decent rates, markets are holding up okay, and the administration supports big deals. Doug Braunstein from Wells Fargo gave perspective: "The markets are essentially flat for the year and we came into the year with a pretty robust pipeline. It may look bad from where we were in February, but deals are not done month to month."

Worth noting - the Iran situation didn't happen in isolation. Deal numbers were already sliding in February when software stocks got hammered and Blue Owl Capital froze redemptions, spooking people about private credit risks.

Bottom line? Nobody's freaking out yet, but people are being more cautious. Work continues, just taking longer. The big question is whether this is another temporary speed bump or if the combo of geopolitical uncertainty, tech wobbles, and private credit worries turns into something more serious. Right now, it's very much a "wait and see" situation.

#mergerarb