As we had long forecast, the higher central banks raise interest rates, the lower the Merger and Acquisition trend… which hit record highs at the height of the COVID War in 2021 when interest rates sank and governments pumped in countless trillions to artificially prop up sinking economies.
And as we have continued to detail, it is important to understand that M&A activity will continue to slow down as interest rates remain high. But as economic conditions worsen there will be more corporate defaults.
This will bring revenues of struggling companies down, making it cheaper for the “Bigs” to buy out those in economic distress. This in turn will continue to shrink the competitive landscape in many business sectors.
Indeed, in today’s Wall Street Journal, the front page headline is “Wall Street Moves To Buy Properties At Bargain Prices.”
They go on to show how the Bigs are getting bigger by noting that “Wall Street firms are raising new funds to acquire office buildings, apartments and other troubled commercial real estate, looking to scoop up properties at a fraction of the price investors paid a few years ago.”
Yes, “Wall Street firms” = the U.S. money junkies who run the investment racket.
Here are a few of the latest takeovers.
BIOTECH M&As MAKE A COMEBACK
Takeovers in the biotech-pharma industry slumped last year but are on the upswing once again, even though mergers and acquisitions have cratered in other parts of the economy, The Wall Street Journal has found.
Big Pharma has a hoard of cash, some of it a windfall from the COVID vaccine campaign. Also, values of publicly-traded tech companies have fallen, making them ripe for picking.
“Large pharma still has a lot of cash and they have a lot of drugs that are going to go generic over the next five to 10 years,” Mike Perrone, a biotech analyst at Robert W. Baird, noted in a WSJ interview.
“The urgency by pharma goes up each year as you approach patent expirations,” Roderick Wong, chief investment officer at RTW Investments.
The giants will use their cash to buy new drugs that will remain under patents for years to come, and the companies that make those cash cows, locking up future profits while avoiding the tedium of finding, testing, and marketing new compounds.
Biotech M&As during this year’s first half were worth $93 billion worldwide, teeing up 2023 to be the busiest year for such deals since 2019, which closed the year with $328 billion in takeovers, research firm Stifel Financial said.
Through July 11, there were 22 biotech deals in Europe and North America, each with equity values of more than $100 million in play, investment bank Leerink Partners said. This year could put at least 40 deals into the books, which would make it the busiest since 2017, according to the WSJ.
TAPESTRY BUYS CAPRI IN BID FOR LUXURY MARKET LEADERSHIP
Tapestry Inc., the New York owner of luxury brands Coach New York and Kate Spade, is buying Capri Holdings for about $8.5 billion.
Capri owns luxury brands of its own, including Jimmy Choo, Michael Kors, and Versace.
Tapestry is seeking to build a U.S.-based luxury giant able to claim a greater share of the luxury goods market alongside European icons such as LVMH Moet Hennessy Louis Vuitton and Kering, according to Bloomberg.
“Scale appears to be more and more important in luxury, given the resources big conglomerates can put into growing their smaller brands,” Jelena Sokolova, a Morningstar analyst, said to Bloomberg.
Tapestry and Capri together booked more than $12 billion in global sales in the most recently completed fiscal year, Tapestry reported. During that period, LVMH reported about $87 billion; Kering trailed with around $23 billion.
Capri shareholders will receive $57 per share in cash, a premium of almost 65 percent to a recent close. The equity value of the deal is $6.69 billion, according to Reuters.
Capri’s share price jumped 56 percent on news of the deal. Tapestry’s stock lost 16 percent as investors worried about the $8-billion bridge loan it was taking to make the buy.
Weakening demand for luxury living “has put pressure on Tapestry and Capri, both of which are now looking to international markets to bolster growth,” Neil Saunders, managing director at data service GlobalData, said to Bloomberg. “There is more security in embarking on bold international plans as a larger entity.”
CAMPBELL SOUP BUYS SOVOS FOR $2.7 BILLION
Campbell Soup is expanding its waistline in the pasta sauce business, spending $2.7 billion to buy Soros Brands and its Rao lines of sauces.
Campbell already owns the lower-priced Prego pasta sauce label.
Rao reported $878.4 million in net sales in 2022, reaping $67.8 million in net income. Analysts expect it to post net sales of $941.4 million this year, with a net profit of $75 million.
Campbell’s price puts a 27-percent premium on Sovos’ closing market price on 4 August.
News of the sale boosted Sovos’ share price 25 percent in 7 August trading but sent Campbell’s stock down 2 percent as investors worried about the new debt that will pay for the purchase.