Rumors of the death of globalization and capitalism have been greatly exaggerated. The world’s 20 leading nations have committed to resolve the economic crisis together, which if followed through – emphasis on “if” – will probably keep globalization alive. They also look largely committed to resisting the temptations of protectionism, an issue which was increasingly worrying multinationals.
All this bodes well for continued cross-border M&A. However, tighter and globalized regulation of financial markets will mean that raising acquisition finance will never again be as easy as it was during the roaring noughties. The highly leveraged buyout may now indefinitely remain a footnote in the history books.
The prospect of “shadow” banking systems being more regulated could also reduce funding sources. Besides the ongoing market pressures this could see less hedge funds and private equity groups over the long-term. One of their edges, besides leverage, was being less regulated than other financial type organizations. And on the subject of leverage, the promise of more regulation and stricter controls on lending could favor equity as a source of funding over debt. The restricted use of credit will shift the focus to creating value rather than financial engineering making acquirers more selective about their targets. A sort of back-to-basics.
Offshore tax havens also look increasingly endangered, making it harder to extract tax efficiencies from deals and to hide opaque structures. Even though regulatory arbitrage will diminish, it won’t disappear. High-tax countries will still skew the rules to favour inward investment. Rather than being executed, it appears that globalisation and capitalism are being muzzled.
(From Acquisitions Monthly, reporting by Justin Pugsley)
Deals of the day:
* IBM cut its offer for Sun Microsystems Inc to $9.55 a share after a thorough vetting and may soon unveil details of its largest-ever takeover, a source with knowledge of the matter said.