The tremendous flow of M&A deals had to end someday, and that time is right around the corner. Executives at J.P. Morgan Chase & Co., Lehman Brothers Inc. and Bank of America Corp. estimate that M&A could fall as much as 20% in 2008 from a record $3.9 trillion this year, according to Bloomberg.
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The expected slowdown in M&A is nothing new as industry analysts have speculated since this summer a decline in deals. All fingers point to financing costs that have almost doubled since June to its highest levels in four years. This is bad news for leveraged buyout firms that rely on cheap interest rates to finance their deals. Fewer deals also means smaller M&A advisement fees for investment banks such as Goldman, Sachs & Co. that has profited heavily in the dealmaking days of the last four years. Bloomberg points out that smaller M&A fees may contribute to Goldman's first profit drop since 2002, the last year M&A decreased.
Dealmakers such as Martin Lipton, a partner at Wachtell, Lipton, Rosen & Katz, noted the cyclical nature of M&A and said at the The Deal's M&A Outlook 2008 conference Nov. 7: "While it may not be possible to do a $100 billion transaction right now, that doesn't mean it won't happen [in the future]. We're going through one of those periodic times when deal activity shrinks. Although it usually takes 18 to 24 months for things to come back, the history of the last 40 years has been within 36 months it comes back and increases from there." — Gerald Magpily
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