I'm trying to work out qualitatively what the impacts are of countries engaging in QE on M&A activity.
Positive impacts from QE:
- Increased stock market valuations (due to more cheap money flowing into equities) which means companies can use their increased share price as an acquisition currency
- Increased business confidence
Negatives:
- Companies are more expensive
Did I miss any points? Overall, it's a net benefit right?
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Have you read Predator's Ball? There's a section in there that highlights your first point. It mentions how basically, the high inflation during the 80's had swollen up asset prices, so it was actually cheaper to acquire a company (utilizing stock) than to build one.
& rate rise making financing more costly
What to expect after QE2? (Originally Posted: 03/24/2011)
This idea came to me after reading Edmundo's thread for today(3/24/11).
What do you guys think is going to happen with the stock market after the Fed winds down QE2? We are definitely getting close to that point. I am a little nervous and have been thinking about getting back into 100% cash. Please, discuss.
QE 3, QE 4, QE 5, QE 6... = higher highs in the S&P on a nominal basis. In real terms lower lows await
You sound like an emotional investor and should keep your holdings in cash while I make shit tons of money in the market.
In all honesty, I wouldn't be too concerned. I see consistent returns in the future, just not crazy bull-market returns that every one has experienced over the past two years.
If you have a knack for superior security selection, you'll do fine. If you're lazy, you'll get normal returns.
Considering the equity market has had an 86% correlation with the Fed's balance sheet since the crisis measures were implemented (about two years ago), it should be plain obvious where equity markets will be heading if no additional easing measures are implemented. In fact, we have an example from 2010: between April and August of last year, between the time the Fed began backing out of QE1 and announced QE2, equity markets fell about 20%, and bonds and gold trended higher.
QE = bad for PE? (Originally Posted: 07/14/2013)
According to an article, it is said that the Global M&A deal rate is at its lowest since 2004, and that this is attributed to the artificially lowered cost of debt.
I understand that low cost of debt drives up the value of potential target but I don't understand how this affects a buyout firm having an issue of selling its portfolio company at a much higher price at a later time b/c the next buyer's cost of capital will be higher (assuming QE completely end and interest rate keeps rising). Regardless of cost of capital, if a buyer likes the target, wouldn't it finance it regardless of cost of capital assuming it nets +NPV?
Cost of capital impacts NPV, though
Where is this article? I thought U.S. M&A activity was strong?
where have you been?
It may be more difficult to obtain the same exit multiple as the entry multiple, which lowers the IRR and NPV. If you think about it, the bulk of an assets' value is derived from the terminal value.
what?
It affects PE. Namely in the fact that companies don't need PE firms. Let's say I am a company that wants to expand, one of the biggest drivers of PE investment, I can go through the process of a PE investment spend months with the valuations, dealing with the bankers, blah blah blah. Or I can go to a bank and lay my companies growth history, the AR, the gross margins blah blah blah, and get a business expansion line of credit. Which is easier and takes less time? I'll give you a hint, its not the PE route. QE has pumped insane amounts of cash into banks that can pass that on to business at lower rates than PE shops would require.
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