(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.