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Global stock markets might be yo-yoing, but plenty of companies are still shouting, “Let’s make a deal.”
Mergers and acquisitions activity continues to percolate in the fashion world even as the market for initial public offerings is slowing and venture capital firms appear to be shifting from seeding startups that might blossom to making safer bets on proven, growing concepts.
“Deal activity by its nature is long dated and, subject to the availability of financing, will continue despite the equity market volatility,” said Mike Calbert, head of the retail investment group at private equity giant KKR.
According to data from PCE Investment Bankers, M&A transactions were up on a sequential quarterly basis, rebounding from a slight dip in the first quarter. Acquisitions during the second quarter in the $50 million to $100 million and $100 million to $250 million segments grew 51.4 percent and 52.7 percent, respectively, versus the year-ago periods.
Richard Kestenbaum, partner at investment banking firm Triangle Capital LLC, hasn’t seen a slowdown in the M&A world just yet, but said one is inevitable if there’s extended volatility in the equity markets.
“When there’s great volatility, people need time to adjust. Right now, we don’t see a slowdown yet. If it’s like 1987, then it’ll feel like a brief trauma and people will go back to building businesses....If the drop is over a long period, people will need time to adjust, and how much time will depend on how deep are the changes and whether it affects people’s wealth materially,” Kestenbaum said.
The stock market crash of Oct. 19, 1987 was marked by panic selling and a 508-point plunge, or about a $1 trillion loss, but it didn’t lead to a bear market. Instead, after 8 days of volatility, the market rallied through the 1990s until 2001.
Ken Berliner, president of investment banking firm Peter J. Solomon Co., said, “When the market is up 240 points, then down 300 points and then up again, it can be hard to price transactions. People may want to take a short breather while they pause to see what happens to the markets.”
He doesn’t believe the current volatility is a repeat of late 2007 and 2008.
“There were real fundamental issues with the financial system then. This is different now.... [M]ost of the people I’m talking to don’t think there’s a double-dip recession ahead, although they do think that growth will be slower and longer than hoped,” he said.
Berliner said because economic fundamentals haven’t really changed much in spite of the market swings, businesses will continue to pursue their strategic plans. “While you can’t dismiss the impact of any market turmoil, that’s much more an emotional reaction than a practical or strategic reaction,” he emphasized.
Gilbert Harrison, chairman of investment banking firm Financo Inc., also thinks the U.S. economy is holding its own, despite the swings in the equity markets.
“I think the economy is stronger than people expect it to be. The biggest problem is the psychological factor that people have. If there are swings up and down over a longer period of time, people will need to adjust to the new normal of the world,” the banker said.
Allan Ellinger, senior managing partner of Marketing Management Group, said, “The recent volatility in the stock market will not have any negative impact on M&A activity in our sector as very little stock is used as currency....The only potential problem could be restrictions in credit availability if banks decide to limit lending.”
Companies that are on the prowl for the right transaction remain open to new opportunities.
Michael Kramer, president and chief executive officer of Kellwood Co., said, “The market volatility has not impacted Kellwood’s acquisition strategy. We’re continuing to explore partnerships with brands that have great potential for growth in the marketplace.”
Financial sources said the firm is eyeing a handful of companies and will probably make another acquisition before yearend. One company that might no longer be on that list is Catherine Malandrino, which Kellwood was in talks with in May. Market sources said that those discussions have since stalled. Kramer declined comment.