At The Deal's M&A Outlook 2009 conference, Paul G. Parker, a managing director and head of global M&A at Barclays Capital, outlined key trends that dealmakers should be aware of for 2009.
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Key trends Parker expects to see in 2009 include:
- Hostile deals -- "We're also seeing more hostile transactions. It's the No. 3 company wanting to be No. 1, and so they move on No. 4 to make a strategic acquisition at a lower valuation. I expect to see this continue happening. Prices are depressed, but the strategic imperative remains the same. We'll see hostile activity if they're seen as imperative by the unconstrained companies."
- Proxy fights -- "We're seeing a surging number of proxy fights. Usually you only see them being threatened, but you don't see them often. This time they're happening. For those who think the hedge funds and activists have gone away, I think you're going to hear their voices even louder than before."
In the near term, Parker predicts:
- M&A volume falling substantially
- deleveraging at every level
- difficulty in determining accurate valuations
- limited access to financing
Amongst the most critical things to look out for in 2009 are:
- a rising default rate
- a capital structure and liquidity crisis
- rescue financings and sales
As things progress Parker said companies that are under less pressure will be looking to "clean up their balance sheets" through spinoffs, carves-out and the divestiture of noncore assets. Companies with strong balance sheets that aren't constrained by credit markets will follow Jack Welch's recent suggestion that "now is the time to buy or bury your competition."
Parker also predicts that "boards are going to exert more control, and ask more questions. Additionally, there's no
question there's going to be more scrutiny of executive compensation. Conflicts of interest will also receive more attention."
Issues that threaten M&A activity include:
- increased regulation
- the rise of "backlash from layoffs and job cuts from M&A and financial condition improvement"
As he finished his speech, Parker opted to leave the audience with a positive not,e saying, "If things stabilize, this is still a good M&A market. Globalization is not going to go away, and new sources of demand are coming from emerging markets. Deleveraging will continue, but corporate balance sheets are in better shape than they
were in 2001."
He concluded by reminding the audience that "unprecedented valuation declines present unprecedented opportunities." - George White
See all M&A Outlook 2009 posts