Power Lunch

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Power Lunch

Eulogy for M&A's--Analysts Say No Funeral Yet

R.I.P., M&A? Not according to two merger-watchers, who reassured "Power Lunch" viewers that corporate combinations are alive and well -- regardless of interest-rate fluctuation fears.

Gerald Adolph, senior vice president at Booz, Allen Hamilton, told CNBC's Sue Herera that M&A doubters describe a twin-pronged nightmare: either that liquidity will dry up, or that giant mergers made no real sense in the first place. (Remember building plaques bearing the name, "AOL Time Warner"?)

But Adolph scoffed at both of those notions, declaring that the majority of deals are "consolidation-oriented, solidly founded and make a lot of sense." The SVP said that rates will affect the structure of a deal -- e.g., the ratio of cash, debt, etc. -- but won't nix firms' actual plans to merge or acquire.

Kenneth Klee, editor at Corporate Dealmaker magazine, agreed with Adolph -- adding that the real fear of M&A observers is not rate changes, but a big default that would cause ripples throughout the industry. Klee opined that strategic buyers could, in fact, benefit from a rate hike. And he pointed to Honeywell International as boasting "plenty of cash," and said the firm expects more deals this year, "up to a billion dollars."

2006 topped historical records for M&A volume. A frenzy of activity -- involving companies as diverse as Google and YouTube, Harrah's Entertainment and drugstore chain CVS -- enabled investment banks to rack up unprecedented profits. In particular, Goldman Sachs posted the biggest annual profit in the annals of the industry -- $9.5 billion -- for the 2006 financial year.

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