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M&A Market Top Too Gradual to See: Analyst

David Tice, portfolio manager at the Prudent Bear Fund, told CNBC’s “Morning Call” the merger and acquisitions market is like a “boiled frog” and near a market top. But Eugene Peroni, senior vice president of equity research at Advisors Asset Management, thinks opportunity still abounds.

He noted that Blackstone Group and Kohlberg Kravis Roberts are cashing out via IPOs and deal financing is becoming tougher to secure. However, trouble is gathering at such a slow pace that few see the warning signs.

“This market is like a boiled frog,” Tice said Thursday. “It’s occurring very slowly, but the signs are there…It has to do with liquidity…[which] is starting to dry up. Junk bond spreads are up 53 basis points just in the last month. There are people backing away from the financing on these deals.”

Peroni said Tice’s points were well taken, but noted, “It seems that David is presuming that the health of the market is dependent on this M&A activity, the private equity energy that we’re seeing here. If you look back at this market advance at 2002, it was very broadly sponsored -- a lot of different sectors doing well."

He added, "Skepticism is an important factor because it’s keeping speculation at bay, it’s keeping valuations are reasonable levels, we still have a very broad sector participation in these advances. I just don’t see the tell-tale signs of a top or anything approaching a top.”

Peroni said Tice’s points may become concerns in the future, but now obscure a market opportunity.

“I think to focus too much on that right now is to take your eye off...the sweet spot of this late stage advance,” Peroni said. “Usually, the late stage of a market is the most exciting because this is where you begin to get that broader, wide-scale acknowledgement of the advance.”

Peroni remains bullish and said he likes the technology, health care, energy and manufacturing sectors.

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