The M&A market is slowly beginning to find its footing after a steep decline from the manic merger days of 2006 and 2007. The resurgence in the deal market could be particularly beneficial to investment banks and private equity firms who have been bleeding for years as the M&A market has slowly died down:
According to analysts at Credit Suisse there are many reasons to get excited about the potential resurgence in M&A:
- Corporations are cash rich and balance sheets are healthy when compared to past recessions. Companies have the most cash in their arsenal targeted at growth strategies since 2001:
- The Kraft/Cadbury deal is a sign that companies are ready to begin putting cash to work
- The resurgence of the M&A market is good for the lending market and should be a positive for the market in general.
- M&A tends to lag the cycle which could be another sign that markets are improving.
- Sentiment indicators are improving which means the willingness to put cash to work is increasing.
How to play it? The obvious beneficiaries of a M&A boom are Goldman and Morgan Stanley – the last standing of the major investment banks and the closest thing to a pure play M&A company. Lesser known investment banks include Lazard and Greenhill – both of which have benefited enormously after the dust settled from 2008’s fallout. Other likely beneficiaries include the private equity firms who are likely to benefit from the potential market gains in a M&A boom. For investors looking for industry leaders you might consider Blackstone and Fortress Investments. For those looking for more of a diversified approach you might consider PSP – the powershares private equity fund.
Source: Credit Suisse
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.