M&A Will Pick Up As Economy Improves: Market Pro

David Simon, CEO of Twin Securities
David Simon, CEO of Twin Securities

Corporations flush with cash are eager to engage in mergers and acquisitions (M&A), but only when they feel confident about the economy, veteran risk arbitrager David Simon told CNBC Friday.

“There’s a lot of cash building up on all the balance sheets of big corporations,” said Simon, the CEO and president of Twin Securities.

“They really can’t grow their earnings unless they do strategic deals. They are looking now for some kind of confidence in the economy.”

In general, M&A has been virtually at a standstill this year. M&A activity has been down 13 percent compared to the first half of last year, which was not a good year in terms of value deals.

Simon said he favors strategic deals between public companies, as opposed to private equity buyouts.

Just this week, he said, the chemical manufacturer BASF bought a chemical business that was being sold by private equity firm, even though the corporation wasn’t the highest bidder. The private equity firm took a $100 million less to do the deal with BASF, a wealthy corporation, added Simon, than it would, had it sold to the much smaller company that was also bidding for the chemical firm.

“If private equity themselves won’t take the risk of even a company, although a smaller market cap, getting financing, how can you be confident about private equity deals going forward?” said Simon.

“And also private equity deals are basically financial deals. So if the market really sells off, private equity does not want to do that deal. They are going to try and find ways around it, cutting the price. It’s not strategic to them. They don't have that kind of reputation.”

"The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.