Call it what you will — a dog-eat-dog world in which you’re wearing Milk-Bone underwear or an example of capitalism at its finest — an M&A cycle is heating up.
-The Fixed Income Team, ING
“I am not a destroyer of companies. I am a liberator of them! The point is that greed, for lack of a better word, is good. Greed is right, greed works. And greed, you mark my words…will save that other malfunctioning corporation called the USA.”
— Gordon Gekko, Wall Street
Call it what you will — a dog-eat-dog world in which you’re wearing Milk-Bone underwear or an example of capitalism at its finest — an M&A cycle is heating up. This activity may be signaling the rebirth of what British economist John Maynard Keynes originally referred to as “animal spirits”, much to the delight of fictional corporate barbarian Gordon Gekko and his real-life analogues, who require little prompting to act on Keynes’ “spontaneous urge to action”. In the voracious search for yield — and with borrowing costs held artificially low by the Fed for the foreseeable future — the appeal of gobbling up undervalued assets is palpable and could very well be the next natural and exciting progression in America’s virtuous recovery.
Hey, it’s been working wonders for the housing market, so why not the corporate sector? A leveraged buyout here and a little operational expansion and cost-cutting there, the next thing you know organic growth percolates earnings, multiples expand, and the debt load eventually becomes more manageable. This is good for equity returns and, in turn, for a sputtering U.S. economy in desperate need of growth. On one hand, liberating dormant, defensive liquidity in pursuit of higher-yielding, offensive ends could contribute to a cyclical upturn in economic growth, just as it has for the recovering housing market. On the other hand, when a spirit of ebullience turns to one of greed — well, you don’t have to re-watch Wall Street to see where that can lead you.
