S.A.B.E.W. Mergers & Acquisitions Panel
Gregg Lemkau of Goldman Sachs and Chris Ventresca of J.P. Morgan spoke about mergers and acquisitions at the Society of American Business Editors and Writers Conference Friday. They discussed the increase of mergers and acquisitions over the last year and what it means for the market as a whole.
Lemkau says these mergers and acquisitions tend to move in the same direction as the equity market, which has been doing well recently. In fact, many analysts were puzzled as to why there were record low interest rates and record profits with very few mergers and acquisitions occurring. That may have been because there was still enough volatility in the market people were waiting to get past the next storm.
“There was almost always something you were waiting to get past,” Lemkau said. “For the first time, there was nothing on the horizon looming. There will always be geopolitical risk, but there was nothing someone wanted to get past.”
Ventresca says it may have just been timing. A lot of these deals were in the works in 2011 and 2012.
“Maybe the math didn’t work two years ago,” Ventresca said.
Another concern arises comes up when a merger or acquisition happens is whether employees keep their jobs. Lemkau says this tends to be made out to a bigger issue than it is.
“For the vast majority of employees, their job is going to be the same after an acquisition,” Lemkau said.
Ventresca pointed out the virtues of spinning off companies. He said there can be real value in breaking companies up.
“What could we do to create more value? A spin-off is certainly a part of that,” Ventresca said.
Even though it can seem like companies would have the same value together as they would apart, there can be benefits to a breakup. Lemkau jokingly compared it to a divorce and said companies can benefit simply from being detached from other companies.
“When you look at them over time, you can see there actually is more value in the both companies broken up than together,” Lemkau said.
Lemkau finished giving his thoughts on the recent perceived increase in “inversions,” which refers to companies that leave one nation to find another with a lower corporate tax rate. He says he thinks the idea that companies are moving specifically because of taxes is exaggerated.
“[The corporate tax rate] is not that big of a driver of the activity,” Lemkau said. “These are strategic transactions, and once these companies come together, they decide where the better tax savings are. I don’t think they are driven by tax, but the tax is definitely facilitated.”