posted by Jared Fruland
copied from http://news.moneycentral.msn.com
Standard & Poor's, the world's leading index provider, announced today in a research report that it expects M&A activity for both public and private companies to increase in both the number of deals and their dollar size in 2007, as well as become more competitive in nature.
Standard & Poor's research shows that publicly traded companies have built up enormous war chests in both cash on hand and treasury shares -- a result of eight consecutive quarters of enormous share buybacks -- yet their M&A activity has been timid when compared to their excess resources and need for growth.
"The enormous size of these unused, liquid resources speak to the potential of future returns for shareholders," says Howard Silverblatt, Senior Index Analyst at Standard & Poors, and author of the study. "As earnings decline and an economic slowdown becomes more apparent, investor's demand for companies to utilize these resources will grow, changing the risk/reward trade-off for management."
The Standard & Poor's report also notes the growth in M&A deals by private equity funds. These funds are set up to take on additional risk in hope of receiving additional reward. "The timid (but growing) M&A action by the public sector has left private equity funds with a wider selection of target companies and fewer public companies to compete against for their target," says Silverblatt. "The result is less expensive deals that limit the return to shareholders."
Given the available resources, the speculative appetite on the private side for greater returns, and a need to maintain recent high profitability on the side of public entities, Standard & Poor's expects M&A to continue to increase and create a more competitive environment. "Completion of M&A activity between both public and private concerns should increase in 2007, creating higher premiums and raising the bar on the necessary return on invested capital," concludes Silverblatt.
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