Thursday, June 7, 2007

Valley Rumours

1) Facebook to get bought for $2billion by Yahoo!

2) Netflix to get bought by Amazon

3) Cadence to fall to private equity (Blackstone or KKR)

Clearly, there are a lot of spare dollars sitting in either corporate coffers of in the hands of the private equity barons that have to find a home. Nice for those on the receiving end, but how much of this is being driven by something other than the rational logic of merging businesses, consolidating markets or whatever? You have to wonder if those on the executive teams in these companies all of a sudden took a new view of their businesses as being somewhat "maxed out", and are struggling to see how to keep up with the expectations Wall Street now has of them?

This peaking M&A/private equity activity could be another market bubble in the making, with all that this would imply about Dow and NASDAQ futures over the next 6 to 12 months. I hope not, but this is all starting to feel strangely familiar ....


I said...

not sure private equity is the right approach. They generally pay over the odds, so try to maximisie profits or asset stripping must be the order of the day, unless of course they view themselves as charities!

J said...

I need to watch what I say here but I think that there will be a lot of tears over some of these deals in the coming years - not because they didn't get done mind you, but rather because they did. My take is that the management of the companies involved is best placed to know what happening in their businesses, good and bad. Whilst I'm sure the discussions with PE firms revolve around all the positives a deal could bring("here are all the great things we can do when free of the chains Wall Street binds us with") management can also internally figure out that they are entering a down-ccyle, that their pipeline is perhaps shrinking, that they have lost competitiveness etc. in the background.

If you think the business is about to drop off a cliff then you are better served by going down the precipice with a few tens of millions of KKR's dollars in your back pocket than making the same jump but with the accompany screams of stockholders who just saw 10 or 20 bucks wiped from the stock price because you lowered future guidance!