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Harris Williams Managing Director Michael Hogan on M&A in the current economy and which sectors of the economy will see more M&A.
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Also emanate action is down in the first half of the year and and I -- saved by considerable amount Michael Hogan is a man who expects it to pick up.
In the second half what does that mean well when you own a stock that is then taken over often it jumps.
He's got three ways to spot a buyout candidate joining us now out of Fox Business exclusive from Richmond Virginia.
Michael Hogan managing director at Harris Williams Michael let's -- right to it.
Give us a list because time and time again when you see even a whiff -- -- a certain company being taken over the stock tends to skyrocket.
What are the things people should look out for if they're looking to purchase a potential candidate that would be a buyout offer.
I'd say there's three factors that are pretty typical first would be -- a company that's a market leader has real franchise value.
And there's very limited risk to either technology change market change or or regulatory disruption to that position that would threaten its cash was.
So that's that's number one.
Number two would be a strategy in place to grow the bottom line.
And that might take the form of some minister of -- around top line growth through acquisitions or organic growth.
Or it could be something to improve profits through better supply chain management or sourcing.
Or consolidation of facilities.
And then lastly.
A company that has great cash flow and trades at an attractive multiple that.
Equity markets tend to focus on PE multiples the buyout market focuses on cash flow or ebitda multiples well.
Merger and acquisition activity is down about 15%.
So -- -- year in the first half so my question becomes.
Is that due to the fact that there is a tougher economy and companies are hoarding their cash for -- -- saying let me buy something right now that's a big ticket company item for my.
For my umbrella businesses or -- do you expect that because an improving economy might be on the way that.
-- and then -- heat up again what will drive this.
But I think it's actually -- two cities a lot of the drop in M and a activity that you've seen year to date has been in the mega deals.
If you look at the middle market there's actually -- -- rise in the number of deals and we expect that to continue we are deal activities and up 80% year every year and our backlog is up 20%.
I think there's a couple things fueling that one is just the availability of capital.
Your private equity groups are sitting on 424.
Billion dollars of dry powder.
That's money that they've raised it needs to be invested.
You're corporations are sitting on record amounts of cash they have very healthy balance sheets and thanks to the Fed -- cost of debt is near record lows so that so -- it very cheap financing available right now to.
Finance acquisitions.
And you believe that the sectors that we will see the most activity would be what technology energy and power food and beverage what will not be a hot sector for M and a activity.
I think anything that carries a high degree of regulatory risk that remains in doubt for instance part to health -- that may be impacted by weather -- obamacare is fully enacted or not -- Areas that are exposed still -- the financial markets that you've seen very little -- activity in financial institutions.
I'd expect that to continue to be weak.
But.
The sectors you've mentioned health care.
Largely power energy.
Diversified industrials -- -- beverage.
These are all sectors we think will be fairly strong in the second half.
Michael Hogan managing director at Harris Williams we'll see if -- if the activity eight eight -- be eaten heats up thank you so much.
