Industrials, Banks to Drive M&A: Morgan Stanley's Miles (Video)

Bloomberg

7 days ago

00:00
Time now for the Wall Street beat dealmakers. They are raking in billions in M & A, despite lingering fears about trade wars and about geopolitics. Transaction values are up almost a fifth this year, a $2.2 trillion, according to data compiled by Bloomberg. The latest boost to activity comes from almost 100 billion worth of deals announced in the U.S. industrial sector alone. Joining us now at the desk, Tom Miles, global co-head of M & A at Morgan Stanley. And the industrial sector was certainly one that has been really exciting. Financials is not too far behind. Where is most of the activity going to be coming from through the course of the year? I think those two sectoral Thank you for having me, Charlie and Matt. I think those two sectors will continue to be drivers of the overall volume has got tailwinds in the financial sector, as you pointed out, deregulation. The benefits of scale really play out in the financial sector. So they will continue to see that sector. We'll continue to see activity as well as industrials. And you've seen it you've seen a lot of activity over the last several weeks as companies have finished up with plans that they've been making over the course of the last several quarters. So what about valuations right now? Because we're not at record highs anymore, but we're pretty close to them. So how do people feel about the price they're paying for assets? What you're seeing is the price that they're paying. They're they're paying good prices for good assets. And so we've seen a number of transactions at what valuations seem high today. But as you go, it just like it's been over the last cycle, when you when the deal works out, the deal works out. So the higher valuations in the public market are certainly not scaring off buyers because most of the activity we're seeing now driven by corporates is highly strategic. So you've got synergies, you've got, you know, greater growth, all those things that, you know, get a company to do M & A are playing out. And so if you pay a price that's reflective of the market, that's what you have to pay to own the asset. Have you seen the kind of deregulation that we were expecting or the light touch regulation that we were expecting at the end of 24, beginning of 25? Well, we've only been a half a year into the new administration. So, yes, you're starting to see that occur. From a tailwind perspective, as I mentioned. So I think you're going to see you've seen a few bank mergers, You've seen a number of very large transactions occur. In fact, transactions over 10 billion through July are up almost 100% globally, up almost 50% in the US. And you saw last week you saw the Union Pacific Act with $85 billion acquisition of Norfolk Southern. Again, in a week where we had $190 billion of transaction value, that's the largest amount of transaction value since November of 2021 in a single week. And so that activity is continuing across all sectors. That's the deal I wanted to ask about specifically, because the idea after President Trump was elected was that we wouldn't have as stringent antitrust regulation. And this is one where you could see it as kind of monopolizing rail in the US or taking a big chunk of it. Do you expect it to go through? I know the companies expect it to go through. Certainly. I think the. Just to step back, I think from an antitrust perspective, I think what what market observers would say is that there is going to be rigorous antitrust enforcement, but with the intention of having the openness to things like remedies. So that wasn't really in existence in the Biden administration. To the extent you have that type of environment, you've got companies allowed to figure out how to get a deal through and how to, you know, propose things that will make it acceptable to the antitrust enforcers. So I think you've got that type of environment and that type of backdrop for a deal like that to happen. Speaking of antitrust, I think it was interesting. Adobe Figma was blocked, right? You had Lina Khan over the weekend and a lot of people pointing out that maybe this was great. At the end of the day, the idea was to keep Figma independent, not let it be acquired by Adobe. It would have been a $20 billion price tag around that deal. Figma Now after the IPO is almost a $50 billion company. So are there some companies here that are looking at what happens and saying, okay, let's stay independent, let's look at an IPO, Let's forget the idea of an M & A in order to get the Figma style treatment. In a good, healthy market, you've got both M & A and IPO alternatives, and that's what we're starting to see. The IPO market, certainly that was a tremendous IPO and we're going to see more of both of those types of transactions in my mind. So, yes, there are some companies that are going to be better off going the IPO route, some companies that are going to choose the M & A route. And that is that is a healthy set of capital markets. I mean, you've got both debt and equity markets are open for business in, you know, in supporting M & A, but also in some. Reporting great companies going public. Our private equity exits have been slow and sparse. Are they going to be able to start doing more M & A so that we have less continuation funds and you know that money? You know, that question is speaking right to my favorite topic. Yes. The monetization of sort of long held private equity assets remains slower than we would all like. And so you've seen an increase in continuation vehicles, minority stake sales. The good thing about it structurally is those will have to happen. And so a better IPO market, a better, you know, capital markets in general, and frankly, was as interest rates ticked down. All those things will help accelerate the monetization that has to happen over the next couple of years. Will it happen in one big spike? Probably not. It'll it'll bleed upwards, I believe, and you'll see that it's a structural benefit to the to the M & A market coming as more private equity owners seek to to monetize. How much pain is there underneath the surface, though, when it comes to private equity, you hear investors talk about the types of returns they're going to get from vintages back to 2018 assets that have been held for a while. It's not looking too pretty based on what investors are saying. So are they are they able to sell these assets at reasonable valuations, at least at par? It's a market, so you have some people doing better than others. What I'd say is that the underlying profitability of the companies is growing over that period of time. So while the return may not look stellar, the multiple of money may get to where they're going to. And that's that's the really the push that the private equity community is trying to to solve for. And I think the you know, we've been through this before. We had the great financial crisis. Different different pockets of time have yielded different returns. And I think we're going to be in one where the facts will say that there's a pocket of lower returns. Probably, you know, they usually precede a pocket of very high return. So it's a it's a it's a it's a set of people that are looking to invest and they continue to invest in large scale. Can you pitch Warren Buffett a deal for his $344 billion in cash? That's a particular criteria. But look, there is from a from a from an acquisition availability perspective, there are lots of great companies out there. You talked in the previous segment about the earnings volatility that's out there that's causing a lot of volatility within individual stocks. And so I think that's another part. As you know, people who have, you know, big piles of cash that are looking to invest, we'll see companies rerate pretty quickly. And so, you know, you have to be on top of that. And I think from our perspective, you know, we see we see M & A opportunities in every pocket of the of the market for for people with large hoards of cash.