|
June 19, 2007
Beefy M&A Expectations
Private equity-driven M&A volume is already nearing $1 trillion in 2007 versus $1.4 trillion of buyouts for all of 2006 (Dealogic). With numerous larger deals still being lined up, including Home Depot’s supply business and Cadbury Schweppes U.S. beverage unit, it is clear that 2007 will be a record year.
 But while M&A anticipation is widespread, there is the risk that a peak in activity has already occurred and/or that deals are being more intensely scrutinized. For example, Wendy’s announced yesterday it is still considering selling itself, Dow Jones & Co. is still fielding offers, and speculations have again started to swirl surrounding anything related to Aluminum. But where are all the finalized deals?
Obviously chatter could foreshadow another pick-up in activity. However, and as Reuters noted yesterday, there is growing reason to suggest that an M&A slowdown is afoot:
“LBO shops saw huge deal flow in the first few months of this year. But debt is getting more expensive, prices for companies are going higher, interest rate worries loom, and lawmakers are mulling higher taxes for at least part of the industry.”
Merger Monday Takes Another Breather Reuters
As analysts increasingly explain-away rising share prices with the phrase ‘takeover target’, and as long-lived takeover dreams reignite (i.e. Amazon has been buying Netflix for as long as memory serves) it is a foregone conclusion that takeover expectations have been baked into many share prices. What is also clear is that once takeover expectations have been baked in an actual takeover is eventually required for price levels to be sustained. For example, less than two months ago Wendy’s share price soared following the announcement that the company was considering selling itself, but shares fell flat yesterday after the company took the more official route of declaring itself open to ‘strategic alternatives’.
 |
For the record, Wendy’s timed its first ‘We are for sale!’ announcement to coincide with horrible 1Q07 financial results, and yesterday’s announcement was released along with a reduced FY07 earnings outlook. While the ‘strategic options’ mantra gets all of the attention, few seem concerned that one WEN strategy might be to talk up what would otherwise be a floundering stock price (or potential currency).
In short, M&A announcements act as a formidable psychological force in the marketplace when the deals are coming fast and furious, but as a slow down in activity arrives takeover expectations could sour as hungry speculators will begin to ask ’Where’s the beef?’.
|
