Been a busy couple of weeks for M&A in the US mainly. While in Europe companies are benefiting from a reduction in borrowing costs as high yield bonds are performing well (i.e yields lower while prices go higher) in the US companies are being bought.
Last week saw a return to the 80’s with an LBO deal done between private equity firm silverlake and Michael Dell, in that he took his company private in a $25bln deal. Today announcements are that legendary long-term investor and Berkshire Hathaway guv’nor has taken out Heinz in a deal worth about $28bln.
Buffet is paying a 19% premium to Heinz all time high share price which in my mind is a change of approach as he has usually done quite well taking advantage of companies in distress as he showed during the financial crisis with some very lucrative deals with GS and Bank of America. Heinz is very much the kind of deal that Buffet likes as it has strong global brand awareness and cash generative and mature business that wouldn’t be as badly affected from boom and bust or cyclical shifts. This deal will be broked as “the greatest investor in the world thinks the market is undervalued by 20%.” which may or may not be true but I dont think people should read into it that much.
It is a good sign that cash is going to work and risk aversion is slowly disapating but Buffet is very long cash and not always the best metric to base decisions from unless you thinking very long term.
Otherwise markets are quite volatile this week which usually indicates a direction is about to be established i.e buyers and sellers fight it out till one of wins, hate to simplify things but that is essentially what a market is.