Remember “Merger Monday” back in 2007? Those were the days. Market volatility was low (a 100 point move was a huge deal) and David Faber was on CNBC every single Monday morning for almost two years announcing a deal. Private equity firms, hedge funds and investment banks were soaking up the excess liquidity in the market and using it to leverage up their balance sheets as they devoured every company around. Then the crisis hit. As the credit markets crumbled in 2008 so too did the mergers and acquisitions market. Credit became unavailable and the M&A boom came to a screeching halt in late 2008. The chart below shows just how steep the decline has been. After peaking at almost $1.4T in 2007 the latest figures of just $300B are near the 2003 lows.
The names at the top of fee list will look familiar of course. As key players were conveniently removed from the market last year Goldman, Morgan Stanley and JP Morgan were able to increase market share in this lucrative fee market. While M&A fees have fallen off sharply the banks have made up for it in other segments. M&A fees are off 44% through the first half of 2009, but debt issuance is actually UP on the year by nearly 8%. While these firms took on billions of taxpayer dollars they essentially funneled the cash from one another in the form of fees that were actually used to dilute the shareholders of U.S. corporations. Nice gig if you can get it….
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.