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The keynote panel at The Deal's M&A Outlook 2008 conference featured three of Wall Street's top dealmakers: Bruce Wasserstein, chairman and CEO of Lazard and chairman of The Deal LLC; Leon Black, founder of Apollo Management; and Martin Lipton, a partner at Wachtell, Lipton, Rosen & Katz, who sat down with The Deal's editor in chief Robert Teitelman to discuss the state of M&A. On the financing markets "The ability of private equity and acquisitive strategic buyers to innovate in terms of financing is almost unlimited," said Lipton.
Apollo's Black interjected, "The big question with the credit crunch: Is it going to be followed by a recession? That's the $64,000 or $64 billion question today." He said that the U.S. economy is "still in pretty good shape," but not at the growth levels of China or India. Nonetheless, the U.S. economy is still chugging along, and not in a recession yet. "You will see deals continue," Black said. "But clearly there is a slowdown of the pace. I wouldn't expect private equity over the next 12 months to be the 35% of activity. The biggest areas to be hit will be the big public-to-private deals." Foreign investment Lipton thinks that "we're only at the beginning of significant changes" being brought on by globalization and the amount of money being built up in Asia and the Middle East. He predicted that sovereign wealth funds are certainly "going to diversify their holdings" resulting in their recent investments in private equity. Apollo's Black added that sovereign purchases in the future will increase because American assets are looking cheaper and cheaper. "I think we're only at the very beginning of their impact on mergers and acquisitions" Lipton said. "With oil fast approaching $100 a barrel ... the amount of equity accumulated in these funds is huge." He predicts that the tremendous accretion of wealth in SWFs over the last two years will lead the funds to invest in private equity funds, hedge funds, management companies and direct investments. Taxes and regulation Lipton thinks that dealmakers should take care to watch how deals affect local communities as the balance of power shifts in the capital. "Washington has always been a factor in M&A," said Lipton. "If a local community feels threatened by a transaction, they may get politicians involved. People looking for protection from a particular thing always troop down to Washington." Still he thinks that changes in global markets have shifted the viewpoints of regulators. "In the long run, regulation is not that big a factor in merger activity," he continued. "With the general globalization of business, antitrust enforcement has changed. Across party lines, there has been an almost 180-degree turn in the economic theories by regulating agencies. Regulation has become much less a factor than it was 40 years ago, 20 years, even 10 years ago, and I think that trend is going to continue." Black also expects less regulatory hurdles from the government, but where he does see possible change is on tax policy, commenting "the one place where you could see change is taxes. There's been a deficit for years; we're in a two-front war, and one party has control of both houses of Congress." — George White Categories Deal Video
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