Private Equity Sector Trends- Predicting Recovery by Year End?
J.P. Morgan and Thomson Reuters published a recent report on the Era of Globalized M&A which had a number of interesting items evident in their data (download or view here http://www.scribd.com/doc/16482515/The-Era-of-Globalized-MA). What I liked about the analysis was that the graphs in many cases went back 10 years to 1998 or all the way back to 1990 to see reactions to other market adjustments such as Tech melt down to draw comparisons for today’s market. While the report has a focus on global M&A trends, I found the sector data more interesting.
The most obvious findings were that M&A increases with the equity markets as companies have cash to spend on acquisitions (however prices are higher) and that peak M&A correlates to a bubble (not helped due to the last point). The data also suggests that Healthcare and TMT (Telecom, Media & Technology) will be the first sectors to pick back up with consolidation efforts coming out of the downturn. If you consider pharma part of Healthcare, this has held true in the case of the Pfizer-Wyeth megadeal earlier this year. Telecom activity has been flat with the T-Mobile UK to BT rumor not panning out, but Tech has been active albeit from Cisco and Oracle mainly driving the market. Financial M&A activity is shown to move counter cyclically which has played out in an enormous and hopefully once-in-a-lifetime way with Merrill, Lehman, WaMu and Wachovia vanishing and further Private Equity fueled activity for regional banks (BankUnited) or bank carve-outs (Fifth-Third payment processing). This historical data also shows a predicted eight quarter slowdown on M&A which would pull us out of the current stall later this year. However, in the past contractions, the financial system was not almost brought to its knees and I hope it will not be enough to derail these past tendencies to follow the script with a drift towards recovery. David Rubenstein of Carlyle Group recently made similar predictions for market recovery later this year so I hope he and the numbers from the Globalization report are right.
