Deals and IPOs

Why a Fed rate hike won't dent the surge in M&A


One of the banking world's leading deal-makers has said the timing of the U.S. Federal Reserve's first interest rate rise in six and half years will not stop firms eyeing merger and acquisitions this year.

Underlying factors such as wage inflation and companies' needs to divest some of their cash pile will continue to drive M&A activity, regardless of the Fed's strategy on rates, senior MD and global head of Blackstone Advisory Partners, John Studzinski told CNBC.

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A trader works on the floor of the NYSE as Fed Chair Janet Yellen speaks on television during a June news conference.
Jin Lee | Bloomberg | Getty Images

"I don't think it (a rate rise) will have a short-term impact at all, people are already building that in, whether it takes place fourth quarter or first quarter, the magnitude of that increase is probably less. I think the bigger issue is to first understand the magnitude of inflation, wage inflation, and the impact that has on any decision undertaken by the Fed," John Studzinski told CNBC.

The U.S. economy created 280,000 jobs in May, better than expected and likely confirming hopes that growth is back on track after a slow start to the year, according to data released on Friday. The jobs numbers are critical in that they will go a long way toward determining tightening policy from the Federal Reserve

After keeping short-term interest rates near zero for over six years, the U.S. central bank is looking for signs of not just job creation but also wage growth, a combination of which would indicate inflation is on a positive trajectory. After Friday's strong job's number, analysts are now saying a rate hike as early as September is back on the cards.

"M&A activity, for the reasons we have talked about already – the magnitude of cash, the need to generate growth and the strategic logic in five or six sectors is very compelling and I don't see that changing for the foreseeable future," he added.

Formerly a banker at Morgan Stanley and then at HSBC, Studzinski made his name on working on deals such as Unilever's successful $25 billion battle for Best Foods in 2000.

Speaking on the sectors that he was seeing most inquiries for M&A advice, Studzinski said the Technology, Media and Telecommunications (TMT) sector has had "very robust" inquiry and activity.

"The consumer space increasingly active and of course the healthcare space - healthcare broadly defined - pharmaceutical, equipment, services, the whole healthcare space undergoing a lot of scrutiny in terms of deals and just started to see the beginning of a lot of activity in chemicals," he said.

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Global deal making so far in 2015 has reached $1.4 trillion, almost hitting 2007 levels according to recent data from Mergermarket, with seven deals above $20 billion seen so far this year, a vast increase compared to the four seen this time last year.

Deals in the pharmaceutical, medical and biotech space are at an all-time year-to-date high according to the group, with deals worth $45.2 billion to date, up over 75 percent compared to the same period in 2014.

"Rates are low now, but they are going to go up, but not so much that it's going to change the reason for a management team or a board to support a major strategic deal, given the amount of cash they have already on their balance sheets," Studzinski said.