Our M&A assessment was wrong, but we’re setting the record straight and revising our view (subject to change on short-notice)
A credible analyst needs to know when, how, and why they were wrong in both concurrent and predictive market assessments, so here we are admitting that it appears we were wrong in our June 2021 Credit Market Update when we wrote that a “still uncertain outlook will keep M&A volume down this year.” Our statement was based on rich equity valuations potentially leading managers to seek alternatives uses for cash (debt paydown, returns to shareholders, R&D, etc.). However, according to an article in this morning’s Wall Street Journal, “in the first eight months of 2021, companies have announced mergers and acquisitions worth more than $1.8 trillion in the U.S. and more than $3.6 trillion globally, according to data provider Dealogic. Both figures are the highest at this point in a year since at least 1995, when Dealogic started keeping records. Deals are on track to surpass their record set in 2015”.
Apparently, the pace of deals is so brisk that investment bankers and Federal Trade Commission regulators are struggling to keep up with the demand. So while we were correct in anticipating small bolt-on acquisitions, we did not expect the cumulative volume to be anywhere near the level of announced deals that we are currently seeing. It reminds us of another report that we referenced in our July 6 Monday Musings from the Bank of America Credit Market Strategy team titled “Forecasting Supply is Difficult, Especially When it Involves the Future.” Although we were wrong previously, we now wish to amend our earlier statement and read the extremely obvious tea leaves; our new prediction is that the dynamics of the M&A market are likely to remain robust, given record levels of cash, cheap debt financing, and moderated appetite for share repurchases. Stay tuned for our next mea culpa!