Thursday, November 14, 2024

Coming M&A Wave Will Be a Boon For Debt Bankers: Credit Weekly

Must read

(Bloomberg) — Mergers and acquisitions bankers are hopeful that Donald Trump’s return to the White House will help bring even more new deals than previously anticipated. Debt underwriters could win too.

Most Read from Bloomberg

Trump is expected to nominate a new chair of the US Federal Trade Commission to replace Lina Khan, who has blocked a series of acquisitions on antitrust grounds. Her successor will probably be more friendly toward big combinations.

Many of those are likely to be debt-funded. In addition, Trump’s business-friendly stance, such as likely lowering corporate taxes, could add to tailwinds already supporting the return of private equity leveraged buyouts.

Meanwhile borrowing costs are falling in public and private loan markets alongside the Fed’s interest-rate cuts.

“You’ve got syndicated and direct markets that are desperate for deals,” said Rob Fullerton, global head of leveraged finance at Jefferies Financial Group Inc. “You’ve also got tremendous liquidity in both the loan and bond market.”

The economic environment was already positive going into next year thanks to improving unemployment and inflation levels, Fullerton said. “Now with the new administration, the market is expecting a more business-friendly regulatory environment,” he added. “This will be good for M&A.”

There are still obstacles to getting deals done, though. Valuations of possible targets are high: equity markets surged following Trump’s win. Buyers typically don’t want to pay the top price for a company.

Financing is also getting more expensive in bond markets. A selloff in the Treasury market after Trump’s win pushed yields to their highest level in months. The returning US president is expected to back policies such as import tariffs that can fuel more inflation. Economists across Wall Street have dialed back their expectations for US interest rate cuts.

“There has been a hope for a long time now that there would be more LBO sponsor acquisition activity,” said Trip Morris, co-head of leveraged finance at Wells Fargo & Co. “But I don’t know that the fundamental challenges around the buying and selling of companies is in that different of a place.”

Leveraged buyout activity has already been improving in 2024 from last year. Private equity firms have announced at least $94 billion in takeovers of publicly-traded US companies this year, up 63% from the same period in 2023, according to data compiled by Bloomberg.

Latest article