- Companies look to dealmaking as method of expansion: Grafstein
- Activists have become permanent feature of M&A, dealmaker says
Deal activity in the U.S., while down from last year, still has tailwinds as companies seek ways to expand amid sluggish economic growth, said Larry Grafstein, UBS Group AG’s co-head of mergers and acquisitions in the Americas.
“What’s paradoxical about this M&A cycle and makes it different than the ones I’ve seen over the course of my career is that it’s driven, in a way, by lack of confidence,” Grafstein said Monday on Bloomberg TV. “If you don’t have the secular tailwinds of high growth and you have a relatively strong stock market as we’re seeing even today, the question becomes how to grow into your valuation.”
U.S. dealmaking stands at about $1.1 billion this year, down 25 percent from the same period last year, according to data compiled by Bloomberg. Grafstein, 55, said activity last year was “unnaturally strong,” but he expects M&A to continue to be busy through 2016, especially as interest rates remain near zero.
“With the persistence of very cheap money conditions, liquidity has driven a lot of activity,” he said.
Among those who stand to benefit from continued dealmaking are activist and institutional investors, according to Grafstein, who joined UBS in 2012 from Rothschild. Activists have become a permanent fixture in the deal landscape, he said, and companies that lag in their industries are increasingly susceptible to campaigns by such investors.
“No one has a monopoly on wisdom,” Grafstein said. “If they have constructive ideas you should engage with them and take them very seriously,” he said of activists.
Outside the U.S., transactions by Asian and U.K. companies will continue to be a defining feature of M&A this year, Grafstein said. Deals such as China National Chemical Corp.’s $43 billion bid for Syngenta AG and SoftBank Group Corp.’s $32 billion takeover of ARM Holdings Plc reflect a strong appetite for dealmaking in China and the U.K., he said.