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The $4 Trillion Urge to Merge
Dear American Capitalist Reader,
It’s been six long years since M&A activity surpassed $3.3 trillion in deals. But in 2006, we blew right past it with 31,825 deals (valued at more than $4 trillion) thanks in part to a meteoric market rise to historic levels. It gave more than a few bankers something to smile about when bonuses were paid out.
For 2007, given the market’s inability to top out, we strongly expect M&A activity to continue its stellar rise late into 2007. And we’re not the only ones who think so. According to the New York Times, Abby Joseph Cohen “expects merger activity to keep rolling in the New Year, thanks in part to the Federal Reserve’s halt in raising interest rates.” And, according to the report, David Bianco, a UBS Investment Research U.S. equity strategist, “suggests that the companies in the Standard & Poor’s 500-stock index are using less than half of their debt capacity, something he expects to be corrected.” The Times continues, “How would that happen? These companies may decide to borrow funds to buy back their own shares. If they do not, they are likely to become the targets of private equity firms, who will happily pile on more debt in the form of a leveraged buyout.”
One sector to keep an eye on is steel. Here’s a sector where surging steel demand helped spur $78 billion in 2006 M&A activity, including Mittal’s $38 billion takeover of Arcelor. And now, not even a week into the New Year, Nucor has agreed to acquire Harris Steel for about $1.07 billion. This won’t be the last of them, as steel companies attempt to become even more profitable on rising steel demand, and attempt to produce larger cost savings.
Take care,
Ian L. Cooper, Editor, Early Alert Trader
