Why M&A Activity May Suffer
Last June, the Standard & Poor’s 500 Index fell the most in 19 months after Fed Chairman Ben S. Bernanke said the central bank could cut back monthly bond purchases later this year. This change in Fed activity might send interest rates up, assert Wall Street advisors, whose business has benefited from low interest rates and record share prices. M&A experts are dampening forecasts for the next six months as a result of added uncertainty of valuations.
August 2 2013 by ChiefExecutive.net
According to Moneynews.com the market for mergers and acquisitions will likely slow substantially if people are reluctant to move forward with deals if they are ensure about share values. Even though Fed officials said that the benchmark interest rate will remain low even if bond-buying decreases, some analysts have become skittish.
According to data compiled by Bloomberg, the pace of new deals is slowing, with companies announcing $988 billion of takeovers in the current quarter, down from $1.03 trillion a year earlier. Morgan Stanley CFO Ruth Porat, told analysts on a conference call, according to Moneynews.com that its fees from advice were essentially flat. The New York-based firm’s first-half revenue from advising clients, which includes fees generated by deals announced previously, climbed 1.4 percent from a year earlier.
CEOs are waiting to see if share prices are about to shift and are struggling to come to terms with what Doug Sipkin, an analyst at Susquehanna Financial Group LLLP, believes, “what the real prices for stuff are.” The problem is that few people agree with what represents stable valuations, Alexander Roos, who leads Boston Consulting Group’s global M&A practice from Berlin, told Moneynews.
Not everyone is hesitating. Publicis Group SA and Omnicom Group Inc. have agreed to merge in an all-stock transaction that will create the world’s largest advertising company. And Perrigo Co. agreed to buy Irish drug company Elan Corp. for $8.6 billion.
“People generally don’t engage in M&A unless they have some confidence in their assumptions about the future,” Lazard CEO Kenneth M. Jacobs, said in an interview by Moneynews. “That generally happens when you can see the macroeconomic environment either improving or stable. And that hasn’t been the case for the past six years or so, really since before the crisis.”
According to the Commerce Department the economy is slowing down, growing barely by an annual rate of 2 percent. Mark Shafir, Citigroup’s global heqad of M&A said he’s starting to wonder if the pace of M&A will ever return to the levels seen in 2006 and 2007. “It looks to us like we may be actually in a decelerating market as opposed to an accelerating market. ” Shafir said on CNBC.