(By Michael Wong, CPA) The papers have been abuzz with merger and acquisition news. There's been the drama of the financial exchanges, with NYSE Euronext (NYX
) announcing a merger agreement with Deutsche Boerse DB1 and subsequently twice rejecting NASDAQ OMX Group (NDAQ
) and IntercontinentalExchange's (ICE
) unsolicited higher bid for the company. Berkshire Hathaway (BRK.A)(BRK.B
) was put in the spotlight after its acquisition of Lubrizol and related resignation of Berkshire CEO heir apparent David Sokol due to a conflict of interest issue. Megamergers have also resurfaced, with AT&T's (T
) $39 billion bid for Deutsche Telekom DTEGY's T-Mobile USA unit.
The string of high-profile acquisitions and headlines provides evidence that we've entered into a new M&A cycle. Commonly touted interrelated factors conducive to overall M&A activity that appear to be present are rising share prices, senior management confidence, a positive trajectory to the economy, and access to financing. Certain company- or industry-specific factors such as high cash balances, low organic growth prospects, and shifting industry dynamics are also present.
If you want to place your bets on M&A, there are at least two ways you can do it. One, you could speculate on the highest-potential acquisitors and acquisition targets. Or you could invest in the pick-and-shovel investment banks that are providing and booking revenue for M&A financial advisory services.
Below is a table of some of the boutique financial advisory and larger investment banks that we cover along with their proportion of revenue related to financial advisory:
As can be seen from the table, the financial advisory boutiques Evercore Partners (EVR), Greenhill & Co. (GHL), and Lazard (LAZ) are best positioned to ride a wave of M&A deals to superior earnings growth.