M&A Boom Cycle Has Years Left to Run, Ken Moelis SaysJonathan Levin
The latest cycle of deal making -- 2014 marked the best year for mergers and acquisitions since 2007 -- has years to go, a veteran Wall Street banker said.
Ken Moelis, who has helped companies from HJ Heinz Co. to NYSE Euronext find buyers, said mergers and acquisitions have gone through three broad cycles since the early 1980s, usually with three- to four-year breathers in between. After a slump from 2009 to 2012, the latest cycle started about 18 months ago, he said.
Moelis, 56, founded Moelis & Co. eight years ago and took the company public last April. The investment bank reported earnings last month that fell short of expectations, which the banker attributed to a very strong end to 2013 -- a year in which it had advised on $122.3 billion of deals.
Speaking by phone Wednesday, he said the latest cycle is driven by efforts to reduce costs -from overhead to taxes - to overcome stagnating consumer prices and flat sales.
“What I see going on around the world in M&A is an attempt to get every possible efficiency you can possibly get,” Moelis said. “This new cycle is about disinflation, deflation and cost-efficiency.”
Economists expect U.S. consumer prices to increase about 0.5 percent this year, compared with an average of closer to two percent in the previous five years, with a plunge in oil prices adding to an already-sluggish trend. In the Euro region, prices will rise even less this year - by about 0.2 percent.
Previous cycles have been defined by other themes, Moelis said. In the 1980s, companies were snatching up assets in the raw-materials sector. That ended around the first Gulf War in 1991 and was followed by a lull.
Then came a period of companies searching for growth at any cost -- until the technology-stock bubble burst. Again there was a lull.
The most recent cycle, before the global financial crisis, was marked by aggressive use of credit, Moelis said. We all know how that ended.