What are your best trades if M&A activity bounces back in 2008?
Frank Aquila, an M&A specialist and partner with the law firm of Sullivan & Cromwell joins the panel for this conversation. Following is a summary of his main points.
Aquila thinks we will see a pick-up in M&A this year for a variety of reasons:
1) Good balance sheets: Companies have a lot of cash on their balance sheets and relatively low debt totals.
2) The decline of private equity: Last year, many companies were competing with private equity shops, and that drove up the valuations of potential target companies. But with the credit crunch making financing for PE deals harder, companies may start to look for strategic opportunities at lower prices.
3) Low rates: With rates declining, companies could find borrowing rates more favorable, potentially funding more purchases.
4) Weak dollar: The falling greenback should spur foreign companies to take another look at their U.S. brethren, which will be cheaper thanks to favorable exchange rates.
5) Change in Washington: While the public may want change, Wall Street doesn't, and whether McCain, Clinton or Obama win the White House, their administrations are likely to impose stricter anti-trust laws. This might spur some companies to speed up their merger plans.
In which sectors do you expect to see the most M&A activity?
Though we are likely to see consolidation in many areas, replies Acquila, the most activity should come from 3 sectors; energy, basic materials and engineering & construction.
How do you play it?
I think investors should buy Greenhill or Lazard if they’re looking for an M&A play, counsels Guy Adami.
And expect to see lots of proxy fights, adds Karen Finerman.
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Trader disclosure: On Feb.6, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (INTC), (YHOO), (DIS); Najarian Owns (BIIB), (CSCO), (EBAY), (MSFT), (XLF), (C), (BIIB), (NWA), (AMR); Najarian Owns (AAPL) Calls, (NIHD) Calls, (SKS) Calls; Najarian Owns (MA) Puts; Finerman Owns (GS); Finermna's Firm And Finerman Own (TEL), (TYC); Finerman's Firm Owns (KSS), (RTH), (RTP), (WMT), (YHOO), (JCP), (AEO), (BR), (SUN); Finerman's Firm Owns (MSFT) And Is Short (MSFT) Calls; Finerman's Firm Is Short (SPY), (IYR), (IJR), (IWM), (MDY), (BHP), (COF), (SPG), (WFC), (MHGC); Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Fineramn's Firm Owns (CROX) And (CROX) Options, Finerman Owns (CROX)