can anyone explain to me the effects of the recent credit crunch disaster on the M&A departments of investment banks? i understand that lenders being more hesitant to give out cheap loans and the difficulty in issuing mortgage bonds to finance LBOs will make it harder to make takeover deals, but what other specific problems will the companies face? ive heard that some firms like Lehman and Bear Sterns in particular will be drastically effected, why is that?
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due to the fact that financing is becoming more expensive due to higher perceived default risk, the m&a activity will decrease because its more expensive to finance the deals now and the ability to source credit is more difficult...
interests costs, resulting from the recent and on-going credit crunch, will make it harder for corporate-corporate transactions since increased int. cost means more dilutive transactions (which is the headline number the equity market reacts to in acquisitions).
For PE, while interest costs do cut into IRRs, its really the reduced amount of leverage they will be able to get after this crunch, with your typical way lenders, bond mutual funds, CLOs (whatever is left of them) and credit HF's simply not willing to finance 8-9x leveraged LBO's. Further, it will be interesting to see if they are even willing to finance the big LBO's that have been so prevalent and were signed in the first half of the year (who knows if there will be another TXU, banks are going to be wary of underwriting deals such as this and First Data anytime soon after the mark-to-market loss they are going to take on the committments). This will leave more opportunities for corporates who can once again use equity financing to offset the need to raise debt as another source of funds.
Summing it all up, corporates will be in a better position with less competition from PE to go after targets, but will be hurt by the higher interests costs as well (and to some extent by likely drops in their stock prices, offset by likely drops in a potential targets stock price). Overall, PE has driven M&A over last 1-1.5 years, this will stop; M&A in general will decline in the near-term, if that's by 25% or 75%, you're guess is as good as mine, and dependent on the broader economy and corporate profits in general.
Do you think this is the right moment to start a career in M&A healthcare? Thanks
multiples will fall as will purchase prices as will bankers fees
In my mind, you won't see nearly the same deal flow as you have over the last 3-4 years, which probably means lots and lots of pitching and client service. But, M&A is always a great skillset to pickup early on, Healthcare is a defensive sector (people still get sick and go to their doctors and hospital, people still need their meds, etc, etc) so you will be in better shape than some of the other sectors. Depends what your choices are, but if its IBD only, then there are worse places to be than HC M&A. Don't know what your exit opps are though (but that's true for anyone coming from banking over next 2-3 years, I think buyside will hire less in general-but they will still hire top talent)
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