NEW YORK (
) -- With a 'fiscal cliff' looming and reports of a lost year in holiday season retail sales, dealmakers face an uncertain outlook for 2013 after a forgettable year in mergers and aquisitions.
Still, with earnings and stock markets continuing to trend upward alongside a recovering U.S. economy there's reason for optimism that the New Year may revive animal spirits and push corporations and private equity giants into acquisitions.
Investors should watch a near half-year takeover drama for struggling electronics retailer
(BBY - Get Report)
as a proxy for the M&A market headed into 2013.
A possible takeover could confirm the key expected drivers of the deals market, such as private equity and access to cheap buyout or merger financing. Meanwhile, a Best Buy buyout could also signal demand for blockbuster turnaround deals, amid a handful of beaten down former blue-chips like
Research In Motion
, and social media busts such as
Were no Best Buy deal to materialize after a
that started in early August, it could counter expectations that private equity giants will play an outsized role in M&A markets and might underscore the impact of the Fiscal Cliff and weak signs of holiday season sales on C-Suite aggression.
After Best Buy founder and former chairman Richard Schulze proposed a $24-to-$26 a share takeover of the electronics retailer -[Schulze has yet to make a formal offer] - Best Buy's shares have fallen sharply on two disastrous
that show cash and earnings falling, amid online market competition and a weak market for PC-based products.
After delays to a prospective takeover offer, Schulze and a still suspect consortium of private equity giants will have until February 28 to submit a
that could give investors and the company's management something to think over. [So far <i>TheStreet</i> has <a href="http://www.thestreet.com/story/11792225/1/best-buy-a-cynical-march-to-a-buyout.html">criticized</a> Schulze for slow playing a deal at the expense of ordinary investors].
A chronology of the Best Buy buyout drama shows why the retailer may be a leading indicator on overall M&A markets.
When Schulze first made his bid, analysts at Credit Suisse and Citigroup were
he could find the debt financing or private equity interest to support what initially appeared to be a $8.8 billion bid. According to Citigroup's initial August calculations, Schulze would need $5 billion in debt financing. Meanwhile, Credit Suisse analysts estimated a takeover would need a further $4 billion in private equity support. Both pieces of a prospective Best Buy deal would near post-crisis highs in takeover financing.
In a 2013,
Ernst & Young
targets private equity as a bright spot for dealmakers, amid expectations of a flat to declining M&A market. "As corporates continue to be risk averse, PE firms are the ones to watch and are a potential bright spot in 2013 as the down economy provides a good time to invest," said Richard Jeanneret, the vice chair of E&Y's transaction advisory practice, in the Dec. 5 report.
In a follow up mid-December interview Jeanneret, who does not talk about specific companies or deals, said that M&A activity would likely also hinge on wider economic issues.
"I think there is a huge pent up demand and desire for deal making. If we can get some economic clarity, as well as some optimism that European Union has seen the worst then I think we can see a run in M&A," said Jeanneret, who maintained skepticism of such a scenario and cautioned a messy resolution to the Fiscal Cliff could put corporations back on the sidelines.