Tuesday, October 6, 2009

THE REAL PICTURE OF US M&A



U.S. firms completed 88 acquisitions in the 1st half of 2009.Last year in the 2nd half of 2008 we find 122 deals of M&A made by US. We will figure out in this article the reasons behind such higher M&A, its rightful effect on the economy along with how US companies will manage to post good 3rd quarter results.
We find such number of higher M&A when we get firms at cheap valuation, working in favor of the Acquiring Company. We find all the above deals when the US market went for Bankruptcy and entered into recession. So higher M&A is a signature of Economic Recovery.
We  get higher unemployment in M&A. Particularly in times of recession the figure of Unemployment jumps like anything. M&A in times of recession gives more reward than normal times of M&A. M&A in the recession spark waves of consolidation in many industries. Weakened companies will need buyers to survive, while strong firms will take advantage of low stock market valuations to buy troubled rivals at discounts. We also know that when M&A happens in recession times unemployment is must item to go up. No Buying company will like to carry on with excess working staff. That results to reduced competitiveness of the M&A. Tough times can make companies desperate. Outfits with falling sales figures and credit trouble may have no choice but to find buyers and that is also at very low prices. Moreover other companies may be forced to repair balance sheets by selling off assets or profitable divisions. While M&A may revive out of sheer necessity, it will be a buyers' market.
We have also found out the facts behind the further plans of US to make M&A going on without much hurdle, particularly in terms of financing.
As M&A are in the pipeline in the coming days, which made the US financial industry to open up Cash Pro Online. This will provide will provide a single point of access to global treasury, debt, cash management, investments, trade finance, foreign exchange services and other financial capabilities.

We also get higher unemployment in M&A, particularly in times of recession. M&A in times of recession gives more reward than normal times of M&A. M&A in the recession spark waves of consolidation in many industries. Weakened companies will need buyers to survive, while strong firms will take advantage of low stock market valuations to buy troubled rivals at discounts. Tough times can make companies desperate. Outfits with falling sales figures and credit trouble may have no choice but to find buyers and that is also at very low prices. Moreover other companies may be forced to repair balance sheets by selling off assets or profitable divisions. While M&A may revive out of sheer necessity, it will be a buyers' market. So higher M&A is not a sign of ECONOMIC RECOVERY. It’s an outcome of the poor facts of how the US companies are struggling to survive in times of turbulence starving to survive.

We even find out the reason behind posting good 3rd Quarter results by US companies compared with 2nd Quarter. Positive factors for good 3rd quarter results of US consist of aggressive cost-cutting by companies. U.S. businesses, for example, slashed compensation almost 7% in the second quarter. In addition, just as consumer prices are down this year, production costs are also lower. Add to that a lower U.S. dollar, and companies south of the border have the potential to post strong profitability.
We have already got the positive clues of the above testimony through the services sector. The Institute for Supply Management's services index rose to 50.9 last month from 48.4 in August. Services sector in US economy represents about 80% of U.S. economic activity, which includes businesses such as banks, airlines, hotels and restaurants.
But when we find the unemployment rate in the US is 9.8% along with sales of previously-owned homes and orders for manufactured goods are both down. Rising joblessness and falling disposable income is hurting consumer confidence. So in real sense Consumption is not taking place resulting not much sales activities. It's not clear yet how much consumer spending has been propped up. So even if companies post good results compared to 2nd quarter it will not be based on sales but on massive cost cutting and M&A of assets excluding liabilities. So even if the World Stock market dances with the tune of US corporate results, the dance will not last for longer. So higher M&A is not a positive sign and cannot be taken for economic recover is happening in US. Also the Corporate Results of US will depend on cost cutting measures and not on Sales.

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