2010: The year ahead in M&A

In our podcast featuring members of the Dow Jones Investment Banker editorial team, we spoke with Arindam Nag and Rob Armstrong. Arindam and Rob, Deputy Managing Editor and Senior Columnist respectively, focus on the sectors that are building up capital and make predictions about what that means for the M&A landscape. They also discuss their best guesses for 2010 and their biggest surprises from 2009.

Read our notes to see the highlights, or listen to the podcast below.

1:45-2:30 – There are several Real Estate Investment Trusts (REITs) who have been building capital. They are backed by new investors; this leads to a positive outlook. Cash flow shows some properties at a steal.

2:45-3:50 – Think credit quality, not sectors, when you think of where M&A activity will come from. The most activity we will see will be at the low end of credit spectrum.

4:40-5:25 – Regardless of what happens to healthcare reform, in hospitals, HMOs, and some equipment manufacturers there will be consolidation. No one is going to agree on prices until there is more clarity. You may be able to raise money, but not get deals done.

6:00-7:15 – Last year there was pressure to buy service companies. For example Xerox buying ACS. Where is the synergy in that deal? That’s emblematic of how serious the situation is for companies in big tech equipment. Tech equipment companies who are under pressure will continue to get into sectors that are new and surprising.

7:20-7:45 – Managed services, keep this sector in mind. The increasing popularity of outsourcing your servers will be key to movement in this area.

8:10-8:40 – Some emerging markets companies, particularly in Asia, now have enough reputation to deal globally and they will look for smaller companies in the Western world to increase their penetration.

9:00 – Arindam Nag: Google and Apple are moving into new spaces, you may see them move to acquire eTrade or a similar company in financial services.

10:00 – Rob Armstrong: Both companies will buy very small competitors with a better mousetrap, if at all. They will not buy handset manufacturer or wireless networking.

12:00-12:35 – Why do we believe that large companies that have large cash piles will do deals this year and next year? Because compared to 2007, today companies (aside from financials) have an extra 290 billion dollars of cash.

14:20 – Never underestimate the U.S. as a driver of growth, and never underestimate the ability of U.S. companies to acquire overseas.

Predictions for 2010

Arindam Nag – The GE & Honeywell deal will get done within the year; we should see Deutsche Bank move to acquire a smaller bank.

Rob Armstrong – J&J, Glaxo, or another huge pharmaceutical company will buy Bausch and Lomb

 

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