We have discussed how the worst deals are done in the best
of times. It reflects the pro-cyclical nature or M&A-merger waves. This in
turn highlights a pro-cyclical risk appetite of managers. Deal volume and
prices plummet during a market downturn. Some managers complete some smaller
transactions which are successful, and M&A interest is rekindled. An
improving economy and rising stock market add fuel to growing volumes. Herding
in the final stages of the cycle completes the process.
Unfortunately as we get further into the cycle, deals become
more expensive and somewhat more risky. The changes at first are small and
frequently ignored - like frog placed into a pot of water which is slowly
heated. Attached is a recent American Banker Article
on the subject which provides more details on the phenomena in the debt
markets.
Preventing your goose from being cooked requires a
disciplined process. This is especially true for large complex deals with high
levels of Shareholder
Value at Risk due to high premiums and integration issues.
J
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