M&A is on the Way!

At these levels, one would think it is only a matter of time before we start to see some headline grabbing M&A activity.  That said, companies are likely skid-dish here regardless of the attractive levels.  Let’s take a look at some of the basic pros & cons of M&A.

Pros

  • Valuations are extremely attractive as a result of the 17% drop in the S&P 500 since May 2, 2011 highs
  • Corporations are holding a record amount of cash on their books
  • As a result of the 2008 financial crisis, corporations are in some of their most efficient “lean & mean” states.  Near max productivity per employee, operating at low labor costs, etc
  • Borrowing costs are at historic lows

Cons

  • Commodity prices are still high, increasing costs of goods sold.  These prices can be hedged and/or passed through to the consumer, but the increased volatility in commodities prices is likely messing with corporate executives a bit.
  • Valuations are attractive, but there is still a ton of concerning global economic news hanging over corporate executives heads.
  • Political risk is a factor, and the uncertainty regarding the political landscape coupled with the 2012 presedential election around the corner has to be swaying corporations away from M&A interests for the time being.

Bottom Line: These valuations should alleviate some of the basic concerns displayed here.  That said, there are far more advanced items that execs must ponder on a case by case basis.  Regardless, we expect to see some big M&A activity in the very near future which in turn should bring some confidence back into this market.