On The Record, David Simon, Twin Capital Management

After appearing on The Strategy Session, we went On The Record with veteran risk arbitrager David Simon.

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

1. With more M&A deals announced this year closing, such as Exxon Mobil and XTO Energy, and with fail bids at their lowest level since 2005, what do you expect for the second half of 2010?

David Simon: "I think the second half of 2010 will be slow and you’ll see mostly small incremental deals of anywhere from 1 to 5 billion dollars. I think after the end of 2010 going into 2011 you’re going to start to see bigger strategic deals. There’s a lot of cash building up on corporations’ balance sheets."

2. Since funding for these M&A deals is largely dependent on the capital markets, can you give us some insight on the availability of capital and what you expect given so much uncertainty going forward?

David Simon: "I think you’re going to see a lot of large corporate strategic deals, and when we do it won’t be dependent on capital as much as stock price. I think that large corporate clients have access to cash—they won’t have any problem. I think it will be more of a problem for leveraged buyout (LBO) type of deals and financial deals."

3. Why you are concerned about private equity?

David Simon: "I’m concerned because in 2008 when the markets went south, private equity were the first guys to try to wiggle out of their deals or try to cut the price. The best way they can protect their investors is either by lowering the price or walking away from the deal. That’s what people did in 2008 and that’s what they’ll do again if the same thing happens."

4. If private equity does walk away, what do you think the consequences of that will be?

David Simon: "Well we already saw in 2008—it wasn’t too bad. They come out of it ready to play another day and they still have a lot of money. I think private equity in the future is not going to be able to raise half the money they raised in the past. I think a lot of the money right now is burning a hole in their pocket, it’s going to have to go back to their investors shortly. I think if they don’t spend that quickly, the size of all those businesses is going to shrink drastically.

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

*Jaclyn Simon, an intern for The Strategy Session, is the daughter of David Simon.