Someone smarter than me, please tell me differently
M&A at investment banks began booming in the late 80s alongside the popularity of junk bonds
Well guess what, 35 years later it’s coming to a pop. Limited Partners over allocated to the private markets over the past few years and have all their money tied up in massive funds that bought any book sent their way to deploy dry pow they needed to offload (I know that’s a bit of an exaggeration)
Now the market is completely oversaturated with not only sponsors but with investment banks and more importantly, overhired within.
Private credit is too expense to use, the Banks won’t lever high enough or to enough deals, and private equity doesn’t want to cover any the delta in equity.
Meanwhile all of the middle market lenders are getting absolutely railed on deposits because clients are going to the big guys for safety. Why put your deposits in a regional if you know the government will bail out BoA?
The Fed is at the cusp of where interest rates were in ‘07 with an ideal “terminal rate of 5.1%. That is where the fed hiked rates to in 2007 that ultimately crashed the real estate market as well as the banks holding real estate derivatives.
Mind you, when the Interest rates fell following the dot com crash they were much higher than they were in 20-21. You can argue it’s a different banking situation and that they’re well capitalized now, but we just saw a bank run and a historic bulge bracket bank fall within a month
US depleted their oil reserves. OPEC cut reduction. the increased oil prices will drive up logistics costs for manufacturers will will ultimately cut the bottom line of the consumer.
How does this not end horribly atrocious?
It is true that the M&A market has been booming for several years, and there are concerns about oversaturation and overhiring within the industry. In addition, there are concerns about the private markets being over-allocated, and the potential impact of rising interest rates and other economic factors on the market.
While it is difficult to predict the future with certainty, it is always important to carefully consider the risks and potential downsides of any investment or business decision. It may be wise to diversify investments across different asset classes and industries, and to carefully consider the potential impact of economic factors on the market.
Ultimately, it is important to carefully weigh the risks and potential benefits of any investment or business decision and to consult with qualified professionals as needed.
Thanks ChatGPT!
Lol
I agree with your assessment. The M&A market has been booming in recent years, fueled by low interest rates, easy access to credit, and high levels of liquidity. However, as you mentioned, there are concerns about oversaturation and overhiring within the industry, as well as the potential impact of economic factors such as rising interest rates.
Diversification is always a sound strategy for investors, and it can help mitigate risks associated with any single asset class or industry. In addition, consulting with qualified professionals can help investors make more informed decisions and navigate the complexities of the M&A market.
It's also important to note that the M&A market is not immune to broader economic and geopolitical factors, such as changes in trade policies, geopolitical tensions, or unforeseen events like pandemics. As with any investment, it's important to conduct thorough due diligence and carefully consider the potential risks and benefits before making any investment or business decision.
What's equity delta?
Difference between the purchase price and leverage is the sponsor equity (or other pockets of capital to fill the delta)
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