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With the winding down of the global mergers and acquisition boom, which began in 2003, many investors are wondering where the new market opportunities may lie. The recent credit crunch has choked off the easy credit that had been fueling the buyouts for years. In fact, through June 2007, M&A activity, as measured by total transactions volume, had been at an all time high. However, the recent liquidity issues have already begun to slow the number of acquisitions and even thwart some deals that were previously in the works. According to the market research from Dealogic, in August there were about $222 billion worth of deals around the globe, the lowest monthly total since July 2005 and considerably lower than the $695 billion figure struck in April and the $579 billion in July. While it is unlikely that there will be a quick rebound in the credit markets, it is even more unlikely the deals will dry up altogether. So, who will benefit from the tighter credit markets and lower deal prices?

The slowdown may serve to open a window of opportunity for new buyers in distant markets that are emerging as M&A powerhouses. As the credit crunch hits home and western companies get cheaper, buyers from foreign nations with large cash reserves, such as oil rich Arab nations, China and India may see this as a prime opportunity to invest those existing cash reserves. There is also the expectation that the tighter credit markets will allow strategic buyers to more effectively compete in the market. Prior to the credit market turmoil, private equity firms often came out on top when bidding against a strategic buyer, as many target companies were not willing to accept stock as consideration compared to cash. Until the credit squeeze eases, it will be more difficult for private equity firms to fund new leveraged buyouts, opening the window for strategic buyers with more to offer. So while the tighter credit markets may negatively impact private equity investors, strategic and foreign buyers may consider this a time of opportunity.

Category(s): Valuation Thoughts
Posted by Jon Grupp at 09:09 PM | Permalink | Comments (0) | TrackBacks (0)