2013 was an interesting year. The stock and credit markets
boomed as investor risk appetite increased. M&A, at least in the U.S.,
continued to improve (see Thompson).
Some of my not so profound observations on 2013 are as follows:
1)
Overall Volume is a Tale of Two Continents: U.S.
volume is up over 11% over 2012 to over $1T-a post crisis high. Europe,
however, continues to lag, reflecting its structural problems. The difference is
also reflected in pricing with U.S. EBITDA multiples and bid premiums of 12.8 X and 40%
respective compared to Euro stats of 10.8 X and 28%. The U.S. market benefits
from an accommodating Fed, leading to easy financing and an increased confidence
from a booming stock market, which also provides buyers with an attractive
acquisition currency.
2)
Shareholder Activism: It seems that activism has
become the 21st Century hostile takeover. Additionally, activists
are acting as M&A headwind (see Activists).
They are focusing more on return of capital through repurchase than M&A.
Watch for shifts in this area to spur activity.
3)
The M&A Paradox: Bidder M&A share
performance are problematic at best. Yet M&A continues. Is management
stupid or unaware of this fact? Recent research by Ralph highlights that the
problem may have more to do with faulty methodology than faulty management (see Ralph).
Failure to include the anticipation effect negatively skews M&A
performance.
4)
Recent Shareholder M&A Response: Even
without making the anticipation adjustments, recent shareholder response to
M&A announcement has been positive. This reflects investors rewarding smart
M&A. Of course, managers failing to deliver the promised returns will have
to pay the piper.
5)
Beware the Aging Acquirer: Aging acquirers
seeking to regain their growth are likely to make bad acquirers. We are seeing
this is the tech industry where firms like Yahoo and others are acquiring to
cover over business model problems. This is unlikely to work as these types of
firms are rarely the best owners of the acquired firms.
Predictions are always tricky-especially when about the
future. Nonetheless, often wrong, but never in doubt, here are a few:
1)
The market will continue to improve in 2014-both
in the U.S. and to a less extent in Europe. Economic and political uncertainty
seems to be declining. Additionally, large amounts of private equity dry
powder, some from heavy fund raising, will provide heightened
acquisition demand. This will put upward pressure on acquisition prices.
2)
Possible concerns are the traditional “black
swans” of overheating financial markets, major unexpected defaults, and Asian
and Middle Eastern geopolitical uncertainty.
Happy New Year
J
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