The financial system is in a slow state of recovery, and a pickup in takeovers will require more confidence in the U.S. economy, according to Evercore Partners Inc. Chairman Roger Altman and M&A lawyer Martin Lipton.
“The U.S. has a lot of work to do,” Altman said in a panel discussion at the Bloomberg Dealmakers Summit in New York today. “It will take a long time for final demand to improve.”
U.S. growth won’t be quick to accelerate, Altman and Lipton said. The economy grew at a 1.7 percent annual rate in the second quarter, revised figures from the Commerce Department showed today, marking two consecutive quarters of slowdown.
Manufacturing in the New York region expanded in September at the slowest pace all year, and factories in Philadelphia contracted for a second consecutive month, according to regional Federal Reserve surveys. Those data points were mitigated by a report that business activity in the U.S. unexpectedly picked up in September as companies boosted orders for manufactured goods.
“There are sharp reactions in the market to meaningless economic data,” said Lipton, a founding partner of Wachtell, Lipton, Rosen & Katz. “You don’t get this unless there’s a lack of certainty.”
Conflicting economic data has led to “a reluctance to get involved in significant transactions,” Lipton said. Mergers and acquisitions are on course to reach about $2 trillion this year, compared with a record $4 trillion of announced deals at the peak of takeovers in 2007, according to data compiled by Bloomberg. There were $1.76 trillion of deals last year and $2.47 trillion in 2008.
There has been further improvement in credit markets this year, said Clayton, Dubilier & Rice LLC Chief Executive Officer Donald Gogel, another speaker on the panel. He noted that 2010 has been “one of the lowest LBO loan-default years ever.”
The extra yield investors demand to own U.S. corporate bonds instead of Treasuries has declined to 2.82 percentage points from 3.25 on June 11, a sign of less perceived corporate risk, according to Bank of America Merrill Lynch index data.
Parts of the financial system are “functioning surprisingly well,” said Altman, while others, such as basic middle-market lending, are “a very, very long way from real health.”
Lipton and Altman credited U.S. officials including Federal Reserve Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and current Treasury Secretary Timothy Geithner for saving the financial system from collapse.