M&A Activity Could See Uptick in 2011

On Tuesday's "The Strategy Session," Michael Price, senior managing director for Evercore Partners said his outlook for M&A activity is pretty positive because CEO confidence is much higher than consumer confidence "and the people we talk to are all about 'how do I fill out my portfolio?' right now.

But Mark Shafir, head of global M&A for Citi, said Wednesday he begs to differ.

"I think in some sectors and some regions, like in parts of the emerging markets where you've got great GDP prospects, there is higher confidence, but as a general matter, I don't agree with that bold assertion."

The great sense among executives is that the rest of the year is going to be pretty flat, he said.

"I think a lot of people are looking at '11 and '12 and a lot of it is their own businesses have to look better and a number of them are starting to feel that way," he said. But there's also financial regulation reform to contend with. A lot of executives want to understand its implications better before making any major moves, Shafir said.

"They want to understand what the credit availability is going to be, we do have Basel III coming, we've got Basel II implementation where I think the leverage loan market is going to be seriously impacted," Shafir said.

"This business is ultimately about stability, certainty and confidence and we don't have a lot of that right now," he said. "We do need to see continued progress in the economic data."

So will there be an M&A rebound? Shafir certainly thinks so, particularly because:

  • Companies have record amounts of cash
  • Valuation multiples are at their lowest levels in 15 years, excluding 2008
  • Smart strategic deals announced in difficult markets have typically outperformed

"We think there's also a growth factor in the PE multiple as opposed to just the cost of equity," Shafir said. "Further, it's very clear to us there's bifurcation. We look at the MSCI global index and the haves...are trading at 15 multiple point advantage."

M&A in China, Other Emerging Markets

GDP growth and infrastructure demands in emerging markets means these investment opportunities will continue to grow, Shafir said. This year alone, Chinese IPOs account for 46 percent of total IPO volume globally.

"You've got to have assets in the right places," he says. "If you're not putting your people and assets in country now, you're not going to benefit."

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