Merger boom coming
It is highly likely that a huge increase in corporate merger and acquisition activity will begin in the second half of the year. It will cut across most industries and be a global event.
This will happen because the world economy must adjust to a paradigm of reduced demand by consumers and governments in the aggregate. Corporations will see the need to rationalize output and spending, and the opportunity to do so through combinations that create efficiencies and consolidate market share positions. Credit markets, while by no means vibrant, are functioning again with some degree of rationality and equity markets are opening up for well designed ideas. Friendly mergers will be the primary avenue that these combinations will take because they don't necessarily require new equity or debt to be raised. Spin-offs will occur as a way to downsize with a possible material upside, and acquisitions will be available to companies that already have strong balance sheets, preferably with lots of cash.
The effect of this will be:
---A fee bonanza for the remaining large investment banks, with Deutsche and CSFB moving up in the league tables as they have both retained and attracted talent while not being under the auspices of TARP.
---The rise in stature and market share of boutique investment banks, existing ones like Lazard and Greenhill and many new ones formed by star managers who have been deserting their TARP sensitive employers or who were set loose by Bear, Lehman, or Merrill. Boards of Directors will be attracted because of the perceived lack of conflicts of interest relative to the remaining traditional houses.
---An improvement in the financial markets, especially the equity markets, all things being equal, meaning no more significant disruptions.
---A continued increase in unemployment rates that will be focused on middle managment white collar jobs and on traditional but obsolescing manufacturing jobs.
---A political dialogue in the developed countries that continues to sharpen as the visibility of M&A driven prosperity contrasts with the employment outlook and the ongoing effects of the global property retrenchment. In the U.S., the Republicans will embrace this division, and replace their "values" driven approach to their message to one that ironically casts them, they hope, as populists playing to what will be rising popular resentment.
This will happen because the world economy must adjust to a paradigm of reduced demand by consumers and governments in the aggregate. Corporations will see the need to rationalize output and spending, and the opportunity to do so through combinations that create efficiencies and consolidate market share positions. Credit markets, while by no means vibrant, are functioning again with some degree of rationality and equity markets are opening up for well designed ideas. Friendly mergers will be the primary avenue that these combinations will take because they don't necessarily require new equity or debt to be raised. Spin-offs will occur as a way to downsize with a possible material upside, and acquisitions will be available to companies that already have strong balance sheets, preferably with lots of cash.
The effect of this will be:
---A fee bonanza for the remaining large investment banks, with Deutsche and CSFB moving up in the league tables as they have both retained and attracted talent while not being under the auspices of TARP.
---The rise in stature and market share of boutique investment banks, existing ones like Lazard and Greenhill and many new ones formed by star managers who have been deserting their TARP sensitive employers or who were set loose by Bear, Lehman, or Merrill. Boards of Directors will be attracted because of the perceived lack of conflicts of interest relative to the remaining traditional houses.
---An improvement in the financial markets, especially the equity markets, all things being equal, meaning no more significant disruptions.
---A continued increase in unemployment rates that will be focused on middle managment white collar jobs and on traditional but obsolescing manufacturing jobs.
---A political dialogue in the developed countries that continues to sharpen as the visibility of M&A driven prosperity contrasts with the employment outlook and the ongoing effects of the global property retrenchment. In the U.S., the Republicans will embrace this division, and replace their "values" driven approach to their message to one that ironically casts them, they hope, as populists playing to what will be rising popular resentment.
posted by John Borden at 3:08 PM
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