When will this merger wave end? Part 2

Posted on Monday, 10 September 2007. Filed under: Commentary, Mergers |

After writing the post last week on the end of this merger wave, I saw some comments on FT Alphaville from Morgan Stanley about now being the biggest market buying opportunity in a long time.  Their analyst is very bullish — and this from the same Morgan Stanley analyst who urged ‘sell, sell, sell’ back in June, according to the Financial Times.  

 Look at two of the comments:

This final leg of the bull market will be characterized by all the things we have not seen yet this decade, including big retail buying of equities, big strategic M&A, an increase in corporate confidence leading to a capex boom and multiple expansion in equity markets.

We recommend investors start buying equities. The scenario we think is most likely is that this is a bull market correction, and that markets will go to new highs before this bull market finishes.

But there’s an acknowledgement that this not yet the consensus view.

We received a healthy amount of pushback on our call from mid-August to start buying equities again. Pushback is good. We know that we may well be on the right track with a call, when we get a lot of investor pushback. It means we are not consensual. Six to twelve months later, with the benefit of hindsight, we know we will look very silly or very right.

This links well with our comments here last week about the end of the merger wave (‘When Will This Merger Wave End?‘) wherein we suggested that some will see the recent downturn as a time to buy companies cheaper than they could have done so a few months ago.  This does make sense — and especially if you believe Morgan Stanley’s analysts — if the deal was already being planned before the recent market declines and if paid with cash (not affected by the downturn) or with shares that had not plummetted as much as the target’s.  Note that Morgan Stanley’s analyst also suggested, as we did, that strategic investments (and not the financial ones from hedge funds and private equity investors) could drive this next period of mergers.


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