Fancy a quick round of the classic '80s gameshow...?
IF YOU WERE unlucky enough to have missed it two decades ago, Blankety Blank was just like America's Match Game, only with worse prizes. Broadcasting regulations in the United Kingdom used to cap their value.
But updated for the Noughties, the game remains very simple. Just write down the one word that best completes the well-worn phrases below.
And here's a hint – the clue is in the question!
"Huge deals fuel record-breaking BLANK," says the Financial Times. Its latest market report adds that "BLANK activity thrusts New York to fresh peaks."
"European stocks set new 6-year high on BLANK," reports Reuters today and every day in May 2007. "FTSE ticks down on oils; BLANK supports."
"Lawyers win in European BLANK banking battle," reports the Wall Street Journal. "Stent failure a crack in BLANK for J&J," it adds.
"Canada's Dollar climbs to 11-month high amid BLANK optimism," reports Bloomberg. It reports that nearly 600 Canadian companies have been subject to foreign BLANK since the start of last year. The newswire itself has published 15 stories about global "BLANK" in the last 7 days alone.
Ready with your answer? Just think – what single thing could possibly provide such rocket fuel, pure liquid hydrogen, to support, thrust, fuel and send stocks, indices, funds and even currencies soaring to fresh highs almost every day...?
Okay, let's reveal the legend. "Global mergers and acquisitions volumes leapt over the $2,000bn mark on Monday," as James Politi reports in the Financial Times, "as the pace of corporate deal-making in 2007 continued to exceed even the rosiest predictions on Wall Street and in the City of London."
In short, M&A is the missing blank in any review, preview or analysis of today's financial markets. Buying up an entire listed company...any listed company...seems to be the only game left after six years of easy money worldwide.
Dealogic, the financial consultancy, claims that M&A activity since the start of 2007 has outpaced the same period in 2006 by more than 62%. March this year was the busiest month in history – but only until April got started. The previous top for M&A spending, the DotCom Boom of 1999-2000, now feels more like false memory syndrome than a warning from history.
"The [global] boom in transactions," says the Financial Times, "is being driven by a combination of cheap debt to finance acquisitions, a benign antitrust environment, particularly in the US, and globalisation, which is forcing companies to reassess their competitiveness and their mix of businesses."
Mixing business with cheap money has never been so much fun! Witness Alcoa bidding for Alcan to create the world's largest aluminum firm. Alcoa itself "could become merger prey," adds the Wall Street Journal. The Journal itself just got a bid from Rupert Murdoch's News International. Merrill Lynch says private equity might be set to buy BHP Billiton, the world's largest mining group. BHP itself could now be preparing a bid for Rio Tinto, according to the latest rumours. Thomson, the newswire service, is bidding £8.8 billion for Reuters – a 42% premium to Reuters share price of only four days ago. ABN Amro, the under-performing Dutch investment bank, has now got so many suitors, it's using the courts to scuttle fresh bids unless they add a couple of billion to their offer.
"Doubts remain about the sustainability of the global M&A boom," warns the FT, "particularly if fears of a sharp slowdown in the US economy were to materialize."
But hopes of strong US growth are NOT what's underpinning this historic bubble in corporate activity. Investment bankers know as well as any private investor that elephants don't gallop; yet the size of corporate takeovers has grown as their number has slipped – down more than 21% in Europe so far this year, and down by nearly one-quarter in the United States. Bigger is better right now, a function perhaps of what's really driving this boom in M&A: investment banking targets.
Take Lazard, for instance. So far this financial year it's restructured New Century Financial, the failed subprime mortgage lender; advised on Barclays attempt to merge with ABN Amro for $91.3 billion – the "largest bank merger with ABN in history"; overseen €43.7 billion in the Endesa deal; helped set up the biggest ever leveraged buy-out, selling TXU to a private-equity group for $45 billion; advised on Mellon Financial's $16.5 billion merger with the Bank of New York...KeySpan's $11.8 billion sale to National Grid...the Chicago Board of Trade's plans to merge plus American Standard's plans to separate out its businesses...
Yet still Lazard comes way down the table of Wall Street rainmakers! Lazard's financial advisory division accounts for more than half its top-line profits. But revenues were barely changed during the first quarter. Morgan Stanley, meantime, achieved a 10% rise. Goldman Sachs grew its advisory revenues by 17%.
Funnily enough, the busiest sector for corporate deals is also financial services. Some $410.6 billion of equity has changed hands since the start of 2007 – nearly twice the money spent in energy, the next busiest sector. In short, the financial services sector is both leading and driving this bull market, as Citigroup has beaten Goldman Sachs, last year's winner, for the title of No.1 corporate adviser so far in 2007. It's outstripped the value of J.P.Morgan's deals – the second busiest corporate deal maker – by around 7% at $586 billion since January.
What's at stake goes far beyond a few measly basis points on the cost of borrowing. It's taken the Dow above 13,000...pushed Europe and the S&P up to fresh six-year highs...and mopped up "excess liquidity" flooding balance sheets thanks to the global recovery in corporate earnings.
Lazard shareholders, if they're worried that their investment isn't performing, should no doubt take comfort from the hope of a predatory offer due soon. For just as in the classic TV gameshow, losers in today's Blankety Blank financial markets never go away empty handed.
The twist in 2007, however, is that their consolation prize – a free Blankety Blank Chequebook and Pen – can now be used to buy more financial assets in fresh M&A deals. The true value of productive enterprises might not be improved; it may even be put at risk.
But so what? It's only a game, after all.