Effect of QE on M&A activity

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.

danonr. 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?

danonr

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?

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.

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Where is this article? I thought U.S. M&A activity was strong?

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.