UBS: US Brokers and Asset Managers – A Cold Front Is Coming to M&A Activity
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A recent UBS report highlights that while global M&A activity appears robust on the surface, underlying fundamentals are deteriorating. Year-to-date announced global M&A value grew 22% year-over-year, but this was driven almost entirely by a few massive strategic transactions related to artificial intelligence investments. In contrast, the actual number of US deals plummeted by 36%, and announced fee revenues declined. UBS attributes this cooling activity to structural uncertainty fueled by AI advancements, alongside rising macroeconomic and geopolitical risks. Consequently, UBS downgraded its 2026 and 2027 EPS estimates for the sector by an average of 10%, positioning its forecasts in the mid-teens below market consensus. Deal pipelines have declined by an average of 30%, setting up a significant "air pocket" for advisory revenues in the coming quarters. The firm notes that while near-term earnings may appear healthy due to strong first-quarter deal completions, consensus estimates remain overly optimistic regarding both revenue and compensation ratios, leaving 2026-2027 EPS estimates inflated by approximately 15%. UBS maintains a Neutral stance on the sector, ranking its preferences based on estimated price upside as HLI, LAZ, EVR, PJT, and MC. However, the restructuring business, particularly liquidating market exposures, offers brighter long-term structural tailwinds. Target prices were cut by an average of 19%.