I’D BE REMISS if I didn’t kick off this week with the fabulous IFR awards dinner on January 22 in London. Once again, we had a full house of more than 1,000 people in attendance. The capital markets industry did itself proud by donating £1,066,729 to Save the Children through our annual live bond bookbuild.
Goldman Sachs, IFR’s 2013 Bank of the Year, ended up as bookrunner with a magnificent winning bid of £450,000. That means that since IFR started hosting the awards event 19 years ago, aggregate donations have exceeded £22m. Such generosity is truly amazing and I commend everyone who bid so enthusiastically on the night.
AND SO TO business. I’d started 2014 with an upbeat tone and I felt determined to stay positive on the year ahead. On that basis, my topic this week was intended to be about how the M&A cycle seems to moving into a positive phase and that we could see an upswing in deal flow based on a strengthening feel-good factor.
There are a number of factors at play: stronger and more robust economic growth; solid corporate earnings; transparency around central bank liquidity withdrawal (itself evidencing better economic performance) and an orderly response to that withdrawal; and high levels of buyside liquidity. According to my reckoning, that creates the potential for a much better flow this year and next as corporate CEOs get bolder on turbo-charging growth.
So here’s my conundrum: was the state of disorder and disquiet in equity, currency and credit markets on Thursday and in particular on Friday no more than one of those panicked but short-lived contagion events based around nothing really specific and partly axed around profit-taking on assets that have seen significant and in some cases linear appreciation? Or was it a signal of something more fundamental, pointing to real impending distress, slow growth and financing gaps in exposed EM economies? And is it serious enough to derail my confident demeanour?
To my mind, it had all the hallmarks of old-school renegade hot money taking on vulnerable central banks that have insufficient resources at their disposal, for no other reason than because it can. And if everyone else gets panicked into the bargain, job done. I certainly couldn’t find any plausible explanation – or any new reason – as to why it happened and why now.
My 2014 outlook for capital markets, published last week, did acknowledge that the market would remain jittery at the sight of any reversals of expected outcomes on the data side – particularly in the first half of the year – but I’m struggling to see any evidence of that.
What we got instead was a re-run of the mid-2013 sell-off linked to US tapering with that old chestnut of a China slowdown thrown in. Focus on the likes of Turkey, South Africa, Russia, India, Brazil and Argentina, with wobbles in places as disparate as South Korea, Taiwan, Malaysia and Poland, was nothing new.
Neither was the other side of the trade: a soaring yen and Swiss franc, sharply lower US Treasury and Bund yields, and massive oversubscriptions of eurozone government bond issues. We’re back to the tedium of risk-off and safe-haven buying (and yep: even the eurozone periphery is now viewed as a comparative safe-haven).
We’re back to the tedium of risk-off and safe-haven buying
BACK TO MY original story: M&A. I’ve been chatting to a few advisory bankers to try and gauge their outlook. Truth be told, they’re a coy lot and rarely give much away but I did sense (well, into the middle of last week at any rate) the more upbeat demeanour I’ve been referencing of late.
I took a look at M&A data from 2003. The current year, with US$194bn in activity between the start of the year and January 24, has only has been bettered by 2011 (which was flattered by AIG’s US$59bn debt restructuring with preferred shareholders), and is substantially above the 12-year trend-line of US$126bn.
Fair’s fair, the current crop of big deals are kind of safe in that they’re in industry verticals and are synergistic sector build-out plays (witness Charter Communications’ US$62bn offer for Time Warner Cable; Liberty Media’s bid for the rest of SiriusXM Radio (US$11bn); Fiat’s clean-up of Chrysler (US$4.35bn); Suntory’s US$16bn bid for Beam; and Anheuser-Busch Inbev’s purchase of Oriental Brewery from KKR for US$5.8bn).
But it’s good to see a good combination of trade as well as private equity playing. Verso Paper’s US$4.3bn deal with NewPage was an all private equity deal (Apollo acquiring from Cerberus); while Carlyle Group’s acquisition of Ortho-Clinical Diagnostics from Johnson & Johnson for US$4.15bn and the US$4.4bn Fraser & Neave sale of its real estate development unit speak to the ongoing spin-off trend.
I think the current M&A trend is set to continue. But what of the market sell-off? It’s always tough (or foolhardy) to make a call in the midst of an aggressive downturn, but what the hell. I reckon the mini-crash will end up being a blip, so am ignoring its sinister disposition. The market wisdom for some time has been to buy on the dips, so I say: Keep your sangfroid, buy on the cheap and focus on the upside benefits of the takeover trend, which I think has legs.