Market Volumes and Lessons for M&A
Equity markets are being propped up by impressively cheap money: central bank liquidity injections and the overtime-price of money, interest rates. Typically during times of rising equity prices, merger and acquisition activity ramps up. Most expected 2013 to be a banner year for M&A activity and began trumpeting the return of such with the Heinz deal involving Warren Buffet. That deal warrants a closer look however as Buffet didn’t invest in the equity side, that side is primarily coming from Brazil. Buffet provided debt financing to the tune of 9%, not exactly a ringing endorsement of longer-term growth. Right now M&A activity continues to be in a noteworthy low because M&A is not dependent on cheap money, but rather on long-term growth prospects and confidence. The lack of such activity is yet another signal that the recent rise in equity markets warrants caution. If we look at market volume, the number of shares traded on a daily basis has fallen almost 60% since 2007. This shortage of volume implies that there is little conviction in today’s directional trends.
