It’s difficult to get dealmakers to agree on anything. Company valuations, management fees, CEOs, steak or sushi, it’s all up for debate once battle lines are drawn in the board room.
B ut with that said, the most recent bi-annual M&A outlook survey from Thomson Financial (publisher of PE Week) and the Association for Corporate Growth (ACG), indicates that for the most part, dealmakers today are in agreement that this is one of the best environments in which to find, finance and finalize M&A transactions.
The survey, released last week, points to a bullishness among all the groups in the food chain.
More than 90% of investment bankers called the M&A environment good or excellent, while greater than 80% of all the lenders, private equity pros, corporate executives and service providers characterized the environment in the same way.
Only 1% of the 1,577 people surveyed felt it is a poor environment in which to get deals done.
Daniel Varroney, the newly installed head of ACG, depicted the M&A environment as “white hot.” He adds that based on the survey, it’s likely going to be that way for the foreseeable future.
“Even though the Fed keeps raising interest rates, the cost of money remains relatively low,” he says. “And that should continue to facilitate M&A growth for at least the next six months.”
Even as ardor prevails, there are some burdens that come with it. The continued encroachment of the hedge funds into the private equity space is one oft-cited impediment, and the majority of respondents believe that there is actually too much capital sloshing around the marketplace.
To be sure, the hedge funds have added some mystery to the market, with few pros certain about their long-term intentions in the asset class and their potential impact going forward. The most popular gripe, according to the survey, concerns purchase prices and whether the hedge funds are driving valuations higher. However, almost 20% of the respondents take a contrarian stance, saying that the hedge funds actually bring liquidity to the market.
Then there’s the indifferent crowd, representing about one third of those surveyed. They do not see the hedge fund presence as having any significance.
“The hedge fund involvement in private equity is talked much more than it is actually a real factor,” says TA Associates Managing Director Brian Conway.
Conway says that more than anything, the biggest factor in deciding
valuations is the amount of capital in the marketplace.