On the Record: Mark Shafir, Citigroup
, we went On The Record with Citigroup's Head of Global M&A, Mark Shafir.
1. Do you think M&A activity will increase this year?
Mark Shafir: "No. I think it's going to be pretty flat for the rest of the year. The back half of last year the market picked up...we don't forecast the same occurrence this year, and therefore, the quarter-over-quarter comparison is likely to worsen. So we are projecting a pretty flat market maybe up 5-6% year-over-year."
[Follow-up question: Why do you think it will be different than last year?]
Mark Shafir: "We just don't see the interest levels, we don't see confidence and conviction amongst our corporate clients, there's the legislative uncertainty, an economic environment that, while it appears to be improving, there still has a lot of questions marks around it. Those are the primary drivers in our view that there will still be deals getting done but they'll be more in the 'must have' categories, more scarce real-estate as opposed to something that is nice to have."
2. What would you say are the top three indicators that you look for in terms of M&A deals?
Mark Shafir: "We would like to see a better equity market than we have. Credit availability is pretty good. I'd say that, to us, it's really about reduction of uncertainty, better stability and higher confidence levels, because that's what will drive deals.
More broadly, a lot of cash on corporate balance sheets, P/E evaluations are pretty low and there is a lot of data that suggests that the good coming out of recession — companies that buy coming out of the trough do pretty well; they generate excess returns coming out of the markets."
3. How do you think the financial regulations will affect the M&A market?
Mark Shafir:"It's difficult to say. There are some concerns in some quarters that certain markets can be affected in terms of liquidity in terms of cost whether that be hedging. But it's too early to tell because we really need to see the rule makings. We need to see the regulators take the body of the legislation and turn it into specific rules for the clients and industry.
Apart from that, the overall need to do deals—why companies do deals—it's about growth—beyond what you can do organically, it's about dealing with the global world that we live in and in some cases it's about capacity rationalization. I don't think those are going away. Pricing may get impacted depending on what happens to legislation, but on balance, we feel there are a lot of reasons to believe there will be a pretty strong impending recovery. The exact timing of that is unclear."
Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.