Middle East conflict cannot stop the global merger frenzy! Morgan Stanley is still calling mergers a core strategy for long-term growth.

Senior Mergers and Acquisitions Head Tom Miles from Wall Street financial giant Morgan Stanley recently stated in an interview with the media that despite the global political uncertainty, volatile energy markets, and disruptive impacts of the rise of artificial intelligence on various sectors not being evenly distributed, companies are still actively pursuing merger and acquisition deals, with M&A initiatives remaining a long-term strategic core for major companies. At the same time, the latest M&A data compiled by LSEG shows that a new round of geopolitical conflicts in the Middle East seems to have not hindered the global M&A boom. With advancements in artificial intelligence technology driving the way, global transaction values surpassed $1.2 trillion in the first quarter, reaching a historic high. "Companies are developing their long-term growth strategies, and mergers and acquisitions are undoubtedly a key part of it," said Miles, the Global Co-Head of M&A at Morgan Stanley. He added that despite economic growth facing uncertainty and political turmoil during the geopolitical conflicts, M&A initiatives have undoubtedly been a core beneficiary for companies in the long run, as management teams and boards continue to pursue their respective M&A strategies despite uncertainties. The AI boom and energy risks are shaping the M&A landscape The rapid proliferation and penetration of artificial intelligence in the economy are undoubtedly key aspects of this trend. "The AI space is like a tale of two cities," he remarked during the interview. "You'll see some industries or companies experiencing unprecedented demand growth, and M&A needs to be a part of it." Miles explained that, for example, massive data center infrastructure is needed through M&A to expand high-volume AI training/inference tasks. However, on the flip side, AI is disrupting certain business models, especially in the software field; he added that the sector's valuation has undergone a brutal reset. With companies like Anthropic, OpenAI, and other leading companies in AI recently introducing a series of AI agent products focusing on efficient workflow, they are likely to replace certain functional software services at much lower costs, leading to a heavy sell-off in global software stocks. Tracking the iShares Expanded Tech-Software Sector ETF (IGV.US) of American Software, Inc. Class A industry, it has dropped significantly by about 40% from its historical high set in September, plunging into a deep bear market. The pessimistic tone of "AI disrupts everything" since February is mainly due to the market's increasing concerns that AI agent workflows like Claude Cowork and OpenClaw (formerly known as Clawdbot, Moltbot) which have become popular and spread virally may weaken the entire software empire based on SaaS seat subscription revenue model, causing global software stocks to experience rare sell-offs. This sell-off has even spread to traditional industries like wealth advisory and management, real estate consulting, and any other industry that seems to be completely disrupted by AI - the market's pessimistic expectations of "AI disrupts everything" are impacting various industry sectors like a domino effect, causing software, SaaS, PE, insurance, traditional investment banking, wealth management, real estate and property management, and even logistics sectors to "take turns in a big drop", as AI has swept through each traditional industry in the past three to four weeks, prompting investors to accelerate the sale of potential "losers." Miles also stated that the energy market remains a key risk. "For example, if the international oil benchmark - Brent crude oil prices remain high for a longer period," he said, "it will inevitably affect company valuations and cost structures." However, he added that boards are actively evaluating whether the overall impact of high oil prices is temporary or persistent. He stated that boards and corporate management teams understand that if high prices and a new round of inflation prove to be temporary phenomena, then once these mergers are completed, the long-term value of the transactions will ultimately be fully realized. Miles mentioned that with companies pursuing stronger growth and adjusting their supply chains, cross-border M&A interest among some companies is also on the rise, making deals focused on enhancing business resilience more attractive to major international buyers. Miles stated that some long-time clients of Morgan Stanley have driven a significant portion of the company's M&A business, with these clients frequently seeking "trusted long-term advice" from the bank. Record-breaking! Middle East geopolitical conflicts have not hindered the global M&A boom According to data compiled by LSEG, global M&A market transaction value reached a record high of $1.2 trillion in the first quarter. Some dealmakers have mentioned that there are more transactions in the pipeline. Although the number of transactions decreased by 17% compared to the same period last year, the actual size of companies being acquired and sold is larger, with the total transaction value growing by 26%. Of the six largest deals, four involved leading companies in the artificial intelligence field. Last April, U.S. President Trump initiated a global "Liberation Day" tariff action, triggering a new round of global trade wars, which led to a stagnation in M&A activity for several months. However, bankers and analysts generally stated that since the end of February, with the U.S. and Israel launching airstrikes on Iran, the Middle East geopolitical conflict has continued to escalate, but so far, it has not significantly dampened the market's enthusiasm for M&A transactions. Sam Kim, Global Head of M&A at Deutsche Bank Aktiengesellschaft, said: "This time, people are no longer waiting for things to improve but are realizing that volatility is part of life and are working within that framework. The dialogue has never stopped; companies are finding ways to conduct transactions in this environment, rather than waiting for everything to return to normal. This is the new normal." George Holst, Global Corporate Coverage, Industry and Consulting Head at BNP Paribas, stated that corporate clients still view M&A as a key driver of their growth plans and emphasized that the bank's large M&A transaction reserve quantity and value have grown by over 20% compared to last year. "We see a significant increase in cross-border transactions, as companies are seeking growth while also needing a local business presence, not just as suppliers but also to establish a real economic presence," Holst stated.