M&A: boon or burden?

One important challenge for corporate bond investors in 2017 will likely be a continuing rise in idiosyncratic credit risks in investment grade markets. A significant contributor is a wave of M&A activity, which often benefits a company’s shareholders at the expense of its bondholders. In a low growth environment, management teams struggle to deliver shareholder growth organically and so M&A or shareholder buybacks become a natural solution. However, this usually leads to an uptick in leverage ratios, which is a risk for credit investors.

Issues surrounding corporate governance are another factor. Examples include last year’s Volkswagen scandal and this year’s controversy surrounding Deutsche Bank and the US Department of Justice.

That said, we do expect stable, positive economic growth across the US and Europe next year and this should create a supportive environment for credit. At the same time, some of the tailwinds that drove the asset class in 2016, notably the ECB’s corporate bond purchase programme, are likely to fade away, and we are mindful of that.

For more insight into what the next 12 months might hold for investors, please visit the BNY Mellon Markets 2017 special report.

Lucy Speake – Insight, a BNY Mellon company

One important challenge for corporate bond investors in 2017 will likely be a continuing rise in idiosyncratic credit risks in investment grade markets. A significant contributor is a wave of M&A activity, which often benefits a company’s shareholders at the expense of its bondholders. In a low growth environment, management teams struggle to deliver shareholder growth organically and so M&A … read more

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Global M&A hit a post-crisis high in 2014

Regional M&A comparison in US$

We aren’t surprised to see M&A activity climbing, and, as we discussed in an earlier post (see M&A activity takes off, 3 June 2014), that may continue over the next couple of years for several reasons.

  • Corporate liquidity is still high
  • Although softening, financing terms are still attractive, as debt markets remain mostly open and supportive.
  • Political and regulatory uncertainty is slowly subsiding, enabling executives to think strategically and look further out into the future.
  • Acquirers’ stocks are rising when investors reward smart, calculated moves. This encourages other corporate management teams to be proactive.
  • Activist shareholder activity is clearly on the rise.  This has been and will continue to be a driver as activists have put up sterling performance numbers and are attracting large net flows of assets to manage.
  • The rout in oil and commodities will create M&A activity as sellers eventually realize the reduced longer-term outlook for their business.

The dramatic shift in the US dollar may slow activity as participants have to reassess the value of their operations in a different currency setting.

James M. Boyd, The Boston Company Asset Management

We aren’t surprised to see M&A activity climbing, and, as we discussed in an earlier post (see M&A activity takes off, 3 June 2014), that may continue over the next couple of years for several reasons. Corporate liquidity is still high Although softening, financing terms are still attractive, as debt markets remain mostly open and supportive. Political and regulatory uncertainty … read more

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M&A activity takes off

Global $10bn+ M&A volume

We have just witnessed one of the strongest starts to the year in M&A in a decade. Financing markets are a key ingredient, as interest rates remain near cycle lows and at absolute low levels for companies to lock in long-term financing. In a slow-growth environment, improving CEO confidence is helping to fuel decisions to buy competitors. Policy uncertainty has diminished somewhat as the economic cycle has progressed. Finally, as the share prices of many acquirers have been faring well, peer companies are incentivised to contemplate their long-term competitive positioning.

James M. Boyd, The Boston Company Asset Management

We have just witnessed one of the strongest starts to the year in M&A in a decade. Financing markets are a key ingredient, as interest rates remain near cycle lows and at absolute low levels for companies to lock in long-term financing. In a slow-growth environment, improving CEO confidence is helping to fuel decisions to buy competitors.  Policy uncertainty has diminished … read more

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