M&A is SO Back

In this issue of the peel:

• M&A is so damn back in 2024—especially for fintech firms. In a particularly macro-sensitive sector, the uptick in mergers, acquisitions, financing rounds, IPOs, and more bodes well for the global economy. Find out how fired up we are below.??
• This 88-year-old activist got a much-needed win on Monday, hopefully pushing the poor guy closer to retirement. Meanwhile, Alcoa just banked itself $1.1bn, and Apple fell apart due to the underwhelming demand for the iPhone 16. Lastly, find out why chip stocks tanked as investors can’t make up their minds.
• TikTok vs Everyone officially hits the courtroom. The “TikTok Ban bill” trial began on Monday—Find out what this means and how it could change the world’s most valuable startup going forward.

Market Snapshot

Banana Bits

• Supply-side inflation points to continuous declines in CPI.
• Salesforce Ventures doubled its AI fund to $1bn.
• The real-life version of Succession is getting underway in a Reno, Nevada courthouse.
• Intel surges on a plan to separate the foundry business into a subsidiary, opening up the possibility for outside investment.
• Florida man sues his realtor after selling his $79mn Miami home for under the asking price without disclosing that the buyer was Jeff Bezos.

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Macro Monkey Says

Backer Than Ever

2024 is the year of coming BACK.

Presidential debates, interest rate cuts, funding proxy wars around the world—these are just some of the things the U.S. does best. And they’re all crushing it in 2024.

It’s been a helluva year across the board. But nothing is more back than one of the most exciting things that we all dream about as children—mergers and acquisitions between large financial technology companies!

Let’s get into it.

What Happened?

According to a recent analysis published by FT Partners, global fintech M&A volume spiked more than 20% annually and quarterly in Q2 of this year.

Source

Second-quarter deal volumes brought the sector back to levels not seen since 2021 and early 2022 when markets were frothier than a badly poured Miller Lite.

348 deals were signed, the most since Q1’22 and the 6th most on record for a given quarter. Not too shabby.

The return to M&A in the fintech sector can tell us a lot about the economy overall.?

Financial companies are particularly sensitive to interest rates and other macroeconomic factors. Plus, companies don’t usually make enormous changes and/or investments when barreling into a recession.

Not only did the total number of deals spike in the first half of the year, but the dollar amount of those deals shot up as well.

Source

The total dollar amount of fintech M&A in the first half of 2024 alone clocked in at $118.1bn, exceeding the entirety of fiscal year 2023 by 14.8%.

To be fair, however, the $35.3bn megamerger between Capital One and Discover Financial is carrying the team on this one. Without that deal, the total dollar amount for H1’24 would sit at $82.8bn, still insane for only half a year.

But it’s not just M&A that’s bringing fintech deals back to life. Financing round volumes are spiking too.

Source

While the total number of financing rounds in global fintech is expected to set a new record, the total dollar amount of those deals remains markedly below the previous year.

Annualized, FT expects the total dollar amount of financing transactions to clock in at $46.8bn, a 14.7% decline from 2023. However, that rate of decline is an improvement from the decline of 40.0% in 2022 and 39.1% in 2023.

Within those financing rounds, banking/lending technology solutions lead the way, driven by more than $1bn invested in U.K.-based alternative lending platform Abound.

Source

Digital asset companies are making a return as well, coming off the floor in 2022 and 2023 to $2.9bn worth of funding in the first six months of this year.

Leading the digital asset sector include firms like Monad, a smart contract platform, and MAR Mining, a cloud-based digital asset mining platform. So, it turns out there is value in this sector when everyone’s not just trying to pump CumRocket or Joe Biden Coin.

All of this has been made possible by the return of IPOs in the sector, allowing private investors to have some hope they’ll eventually be able to exit via public markets.

In the U.S., $2.9bn worth of fintech IPOs have occurred so far in 2024, led by Kaspi.kz and Waystar, raising $1,040mn and $968mn via their respective IPOs.

Source

The Takeaway?

This study comes as expectations for business conditions three months from now approaches new highs, according to the University of Michigan.

The fact that companies show an extreme willingness to pursue large transactions and investments within this particularly macro-sensitive sector suggests that deal & decision-makers are confident in the near-term future of the global economy.

With rates set to decline, we can only expect more activity to come later this year, all else equal.

If you want a seat at the table, you know where to go → WSO Academy.

What's Ripe

Icahn Enterprises (IEP) 14.54%

• Most of us learned to “quit while you’re ahead” in elementary school. Carl Icahn must’ve missed that day, but the old vet got a much-needed with on Monday.
• The 88-year-old activist investor who should be busy confusing the names of his grandchildren on vacation just won a huge lawsuit dismissal.
• A federal judge dismissed a pending class action suit against Icahn Enterprises linked to Hindenburg Research’s short report of the company, basically saying that the latter had no case.

Alcoa (AA) 6.09%

• Like when your friend finally dumps their nightmare of an ex, investors were hyped to hear that Alcoa is ending its relationship with the Ma’aden Joint Venture.
• On Sunday, the aluminum producer announced plans to sell its 25.1% stake in its Saudi Arabian joint mining venture to the JV’s parent company, Ma’aden.
• Alcoa will receive $1.1bn in total with $150mn coming up front and $950mn in shares subject to a 3-year lock-up followed by a 3-year vesting period.?

What's Rotten

Apple (AAPL) 2.78%

• Not sure why, but analysts clearly haven’t listened to the latest Daily Peel podcast. Bearish views on the iPhone 16 have emerged, but don’t they know I just bought one??
• Early sales of the iPhone 16 are down 12% compared to the first post-launch weekend of the iPhone 15 last year… despite my best efforts.?
• Chinese competition, weak demand for the 16 Pro, and the delay of the Apple Intelligence launch until October are all contributing factors.?

Chip Stocks (SOXX) 1.33%

• Chip stocks—one in particular—have turned a lot of traders into millionaires. But they’ve also turned plenty into former traders. Now, investors can’t make up their minds.
• After rising ~10% last week, the Philly Semi ETF tanked Monday on demand concerns. A weak auto sales report threatens chipmakers with a large presence in the vehicle industry.
• Others went down with them as the question of demand for AI hardware still lingers following Nvidia’s earnings. Peak uncertainty has been reached.

Thought Banana

Dancing With Spyware

I hope you’ve enjoyed a very mindful, very demure, brat summer. It might be about to end.

Everyone’s favorite app and the Chinese government’s (probably) most effective spyware protocol ever is on trial this week.

That’s right—the case of TikTok vs Everyone has officially begun. Let’s dive in.

What Happened?

On Monday, TikTok began its courtroom war against the “TikTok Ban” bill signed into law by the Biden Administration in April of this year.

Source

Arguing against lawyers from the U.S. Department of Justice, TikTok will make the case that barring access to their app is a violation of the 1st Amendment by restricting speech and assembly.

On the other hand, the DOJ will argue that this has nothing to do with speech and everything else with national security.

Bytedance, TikTok’s parent company, is the most valuable startup in the world. It gets ~14.6% of its revenue from American TikTok, with the vast majority coming from the OG Chinese version called Douyin.

So, if the DOJ gets what it wants and courts force a divestiture of TikTok or ban the app entirely, it’s not the end of the world for Bytedance.

However, as TikTok’s revenue mix shifts away from pure advertising and expands more into e-commerce, the American audience becomes even more important, given that the U.S. has—by far—the world’s largest consumer base.

Source

The Takeaway?

Keep in mind—this alleged “TikTok Ban” does a whole lot more than the bill’s nickname implies.

Officially titled the “RESTRICT Act,” one of the more controversial details allows the sitting federal Administration to ban any app or tech service deemed as a real or perceived national security threat.

So, Bytedance isn’t just arguing against banning themselves—there are a lot more questionable details the firm can use to argue against its legitimacy.

The case began this week, but in classic American court fashion, it will take several weeks and potentially even months to finalize. The first ruling isn’t expected to come until after the Presidential election in November.

I say “first ruling” because I’ll be damned if this thing doesn’t appeal its way to the Supreme Court. Stay tuned, apes—this is gonna be a long one.

The Big Question: Will TikTok get banned in the U.S.? If divestiture is forced, how will this work, and who gets control? Who decides? Who pays? Is brat summer still on?

Banana Brain Teaser

Previous

A couple decides to have 4 children. If they succeed in having 4 children, and each child is equally likely to be a boy or a girl, what is the probability that they will have exactly 2 girls and 2 boys?

Answer: 3/8 or 0.375

Today

David used part of $100,000 to purchase a house. Of the remaining portion, he invested 1/3 of it at $4 simple annual interest and 2/3 of it at 6% simple annual interest. If after a year the income from the two investments totaled $320, what was the purchase price of the house?

Send your guesses to [email protected]

?

The government solution to a problem is usually as bad as the problem.

Milton Friedman

How Would You Rate Today's Peel?

?? All the bananas

?? Meh

?? Rotten AF

Happy Investing,

David, Vyom, Ankit & Patrick