JPMorgan Chase & Co. Vice Chairman Jimmy Lee sees “more very large transactions” including mergers and acquisitions, leveraged buyouts and activist activity as capital costs stay low and investors pursue growth.
“Acquirer stocks sometimes are going up when they announce the deal,” Lee said today in an interview with Bloomberg Television’s Betty Liu, pointing to Advance Auto Parts Inc., which rose nearly 17 percent after announcing its $2 billion acquisition of General Parts International Inc. last month. “That is a message that the buy-side is sending boardrooms, saying ‘we will invest in growth.’”
Large acquisitions, led by Verizon Communications Inc.’s $130 billion purchase of its wireless business from Vodafone Group Plc, pushed mergers up 42 percent in the third quarter to $671 billion, data compiled by Bloomberg show. In takeovers below $5 billion, volume fell about 2 percent.
Lee, who advised Dell Inc. on its buyout led by founder Michael Dell, said today’s markets would accommodate a $25 billion leveraged buyout “quite readily,” and described the cost of capital as “exceptionally low.”
“Deals have gotten bigger here in the U.S, there’s been more of them, and I do think that there’s going to be more very large transactions going forward,” Lee said.
Money is pouring into activist funds as investors seek bigger returns from riskier strategies, Lee said. Activist funds generally acquire equity stakes in companies and try to pressure company management and directors to make changes that boost share prices and investor returns.
Some big institutional investors “have really gotten quite aggressive over the course of the last year,” in backing activist campaigns, together with hedge funds that follow targets, Lee said, citing the rival Dell bid by billionaire investor Carl Icahn.
Activists are also more aggressively using media to promote their campaigns, he said.
“The media is big now. One of the big differences between now and the 80s -- let’s face it -- Carl Icahn is tweeting,” Lee said. “There weren’t a lot of tweets in the 80s.”
JPMorgan added investment banker David Hunker to its activist group two years ago, expanding the team advising corporate clients on defending against potential attacks. The investment bank has advised companies targeted by activists including Clorox Co., Air Products and Chemicals Inc., Ingersoll-Rand Plc and OfficeMax Inc.
Lee also expects more technology companies to sell shares in initial public offerings, he said. JPMorgan is among banks that are helping Twitter Inc. raise as much as $1.4 billion in an IPO that will price next week. At the same time, others in the tech sector are choosing to stay private longer and eschew additional venture capital money by tapping “mezzanine-type” specialized financing, he said.