Acquisitions during Economic Downturn
Hi everyone! Given the current large interest rate increases and potentially expected large industry-wide layoffs, what typically happens to acquisitions group? Is it the most volatile?
I think it depends on the type of shop. A large fund with AUM to pay fees? Likely to be a slow next 9 months or so, tracking markets and being positioned to strike when appropriate. Small syndicator that relies on acq. fees? I'd be a little more concerned.
Totally depends on the firm and its funding. Many will shift into "distressed asset strategies" and try to keep going. Since so many do that, "distressed" deals become "normal" deals, and some may give-up/pull-back (fyi, this happened after 08-GFC, and somewhat 2020, not really saying a prediction for today, everything is different).
If the firm doesn't want or can't keep acquiring.... many will shift acq people's focus to portfolio/asset mngt (as new challenges and needs are arising there). And yeah, some could layoff parts of the acq team group (depends how bad or protracted it gets). If paying the acq people's salaries is really dependent on acq fees (and it often is), and there isn't a good pool of reserve cash (or willingness to spend it on acq people salaries), layoffs come faster than not.
As I said in a post on developer firms and layoffs.... people in "transactional" type roles do face bigger risks if transactions slow or stop. So in the buyside/investment mngt context this would imply higher risk for acq people. In practice, firms can shift roles/duties rather than disband teams, but the risk can be legit.
The bigger hit to acq people is the likely loss of bonuses/promotes/etc. as all that requires transactions to generate fees. So acq can lose its coolness and high pay during slow periods (just like brokerage...).
What about MFPE level?
So, the "mega funds" (as the phrase is used on WSO at least), are very large, diversified multi-division (beyond multi-strategy) financial firms (often with a lot of vertical integration). So... you probably can't/shouldn't generalize for too much for a single firm broadly. Some divisions/funds/etc. will be more impacted and some less impacted. Clearly those firms have pretty deep financial resources so making payroll not an issue unless the firm has a unique insolvency event (ala Lehman style explosion). They also can shift people between roles/divisions if they so choose. They can also dismiss people from units that appear to be going unprofitable/not strategic, and this can happen with little to no fanfair/press.
Thus, best to take the logic I laid out and apply to each team/business unit within a "mega fund" individually.... on net/overall... the risk of layoff from insolvency is much lower, and the ability to move people around vs. layoff is much much more. BUT.... those firms can/do let people go, so really no free lunch.
Thanks for the insight!
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