NEW ORLEANS â€" While many of the lawyers gathered here may be ready to clink to an upswing in deals, one prominent mergers banker thinks that it’s too early to plan a party.
In kicking off the Corporate Law Institute conference, Mark Shafir, the co-head of global mergers and acquisitions at Citigroup, laid out a view of the deal world still trying to find its feet after the financial crisis.
Many of the factors that should lead to an enormous recovery in deals are in place, he said. But there are enough potential problems that the market is lagging behind where it should be.
“We’re not in the midst of a major recovery,†Mr. Shafir â€" who jokingly dubbed himself the “sacrificial banker†of the conference â€" told the assembled lawyers. “I’d like to be wrong, and I think everyone in this room would like this to be wrong.â€
Many of the potential problems that Mr. Shafir outlined have become common refrains by this point. Western Europe continues to be an extreme laggard, leaving a hole in the market that has yet to be filled. And one of his presentation’s slides listed a host of other issues: sovereign debt crises, “Eurogeddon,†a hangover from the financial crisis.
By one measure, the deal environment hasn’t markedly improved from last year. The number of deals whose value surpassed $1 billion disclosed so far this year is 95, just one more than the same time last year. That’s even after the announced sales of Dell Inc., H.J. Heinz and Virgin Media.
All that has contributed to a recovery that he said has lagged behind previous upswings, following crashes in the late eighties and the dotcom boom.
But the seeds for a recovery also abound. A strong fourth quarter last year and first quarter this year could help provide a comfortable foundation for even more deals.
Low-cost financing abounds, which is enticing potential buyers on both the corporate and private equity side. Valuations, by Mr. Shafir’s reckoning, remain below historical norms. Companies in areas outside the United States, including China and Russia, are proving highly acquisitive. Activists are making moves in greater numbers, potentially spurring companies to consider mergers.
And investors are rewarding deals more and more, Mr. Shafir said. Shares of acquirers rose on average about 3.2 percent in the four weeks after announcing a transaction last year, he noted, compared with just 0.2 percent in 2011.
Even still, Mr. Shafir noted that some of these conditions won’t last forever. An eventual, unavoidable rise in interest rates could shock the markets, at least temporarily arresting any improvement.
All this translates into an environment that will yield some improvement, but not an unbroken run of success.
“We’re still in a high uncertainty period where we get fits and starts,†he said. “While we are doing a bit better, it’s still not great.â€
