The Cupboard Turning Bare for Attractive M&A Assets

We've all seen those signs on the storefronts of retailers that are going out of business: "Everything must go." Imagine that signage taped to the bay window of the big global M&A store about two and a half years ago.

Michael Gray, a partner in the corporate and securities practice at Neal Gerber & Eisenberg, underscored what has been the operative condition in the M&A market for the whole of 2016. In a recent interview he said, "Gross levels are off." In fact, the aggregate dollar value of M&A transactions has fallen 46% from 2015 totals, according to data compiled by The Deal. (Admittedly, last year proved the most robust in M&A since prior to the financial crisis, so some shrinkage was probably inevitable.) Deal flow, Gray added, is still robust.

More importantly, "assets are getting sold at very high valuations," Gray said. "It's a very good time to be a seller."

So if prices are high, and transactions volume is robust, what accounts for the retreat in dollar volume?

"A lot of the high quality product has been sold," Gray explained.

There you go. M&A didn't exactly have a clearance sale—not by any means. Clearance sales generally have somebody channeling Crazy Eddie, insisting "prices are insane." As in low. Whatever insanity has crept into the pricing equation has been inflationary, not disinflationary.

But remember when Leon Black of Apollo Global Management famously said his firm was "selling everything that's not nailed down?" And seemingly inveighed other asset holders to follow his lead? Apparently they did. All that's left on the shelves now are the dented cans and the trains with square wheels.

Which isn't to suggest this is a permanent situation. Gray noted that there are assets that were bought three or four years ago for high multiples that are not quite yet ready to get reflipped. Meanwhile, rates are low, banks are lending. And, for financial sponsors, there's a huge pile of capital on the sidelines. "They have to move money," Gray said, even if they're paying dearly for those assets.

 

One wrinkle that's intrigued him has been the evolution of funds concentrated on specific strategies or sectors—healthcare, SaaS, agribusiness and financial services.

The only deal of the week that crept into big-ticket territory—big enough to rank with the 10 largest of the year—was the $34 billion takeover offer CenturyLink (CTL) made for telecom and Internet service provider Level 3 Communications (LVLT) . But that followed a string of megadeals the week before, topped by AT&T's (T) $108 billion offer for Time Warner (TWX) . 

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