Deals are Back

$80 Billion of M&A deals have been unveiled in the month of December. There is no shortage of glum news (is there ever?) but investors are valuing equities enough to fund some big deals: Oracle-PeopleSoft, Sprint-NexTel (or is it Verizon-Sprint now?), and today, Symantec is looking at Veritas (a former competitor of mine with an 11.5 Billion cap).

The Fed can bump 25 basis points every meeting for a while and still leave the liquidity needed to fuel these big deals -- times are not so bad.

The WSJ news page sez:

"The environment for risk-taking has changed in the past six months," says Jack Levy, co-chairman of mergers at Goldman Sachs. "Before then, boards [of directors] were fearful the market would not reward deal-making."

Indeed, U.S. companies are paying a premium of 28% above the share prices of targeted companies to get them to agree to deals, compared with 22% in 2003. That suggests buyers are more willing to open their wallets for the right acquisition -- and that they feel pressure to shell out now before an improving economy sends deal prices even higher. Shares of General Electric Co., for instance, are up 10% since Nov. 1, despite three expensive pending purchases, including a $1.1 billion acquisition of water-treatment company Ionics Inc., for which GE is paying a nearly 50% premium.

The next paragraph admits that we are not back to 90's M&A activity, but good deals are making money again.

Side note: at a family gathering last weekend featuring in-laws, not my crazy Nader-lovin' crew, all the pubic sector employees were talking glumly about how bad times are. The three of us in the private sector were discussing the growth we see in our companies and the economies at large. Stark contrast.

UPDATE: My post suggested the FOMC could raise rates "250 basis points every meeting." I meant 25 and have corrected it. Two-fifty might not be so good...

Posted by jk at December 14, 2004 10:51 AM