Earlier this week I commented on the buyout crafted by Michael Dell to take private his company, Dell (DELL). My focus was not on the deal itself, but what this deal might mean for the future of deals, as well as for mergers and acquisitions.
Seems like there were a lot of others thinking about this aspect of the Dell deal.
For example, the morning after my post Ryan Dezember wrote in the Wall Street Journal - "Wave of Large Buyouts Unlikely to Follow Dell."
"The $24.4 billion deal to take Dell Inc. private shows what is possible in the leveraged-buyout market but it doesn't necessarily portend a return of the mega-deals popular before the financial crisis.
By far the largest private-equity transaction since financial markets crashed in 2008, the Dell deal has components that are unusual and will make its size difficult to replicate…
'I don't think really changed the industry's thinking about what's doable in terms of scale,' said Blackstone Group LP President Hamilton 'Tony' James when his company released earnings last week."
Not everyone agreed!
In the Financial Times on February 7, Stephen Foley wrote, "Investors call for more 'Dell' deals."
"Investors and bankers are urging private equity firms to launch a new leveraged buyout wave, to feed soaring demand for higher returns in the credit markets."
Adrian Marshall, managing director at fund manager BlackRock said during a panel discussion:
"The loan market is in need of supply. For the last two or three years, the source of new supply has primarily been refinancing (existing loans). Managers are certainly in need of collateral right now."
"Brian Smith, the executive director at the LSTA, said the Dell deal proved that the loan market was able to absorb big LBO deals of the kind that were common in the years before the credit bubble burst."
Then Smith is quoted:
"There is a lot of pent-up demand, with the downside that this is pushing yields down and prices up. That is a signal to guys like Silver Lake that they can go ahead and do deals and do them in big size, and be comfortable that they can get them placed in the market."
And, then the journal articles continued.
Perhaps the most interesting also appeared in the Financial Times on Thursday.
"Buyout firms have accelerated talks with lenders to secure funding for possible £10bn ($15.7bn) bids for EE, the UK's largest mobile phone operator, in what would be the biggest private equity-backed acquisition in Europe since the financial crisis."
My argument is that we have reached a tipping point. What is new is that funds have finally begun flowing into the "shadow" banking system and that this flow of funds has reached such proportions that companies within this sector of the financial markets are going to have to put these monies to work.
For example, I wrote on Tuesday that money market funds are flush with cash.
I wrote on Monday that there has been a revival in the production of collateralized loan obligations (CLOs) and collateral debt obligations (CDOs).
I have written recently about the revival in the mortgage market and in mortgage-backed securities.
The crucial thing is that money has really started to flow into sectors other than just the commercial banking sector. Investors are moving into riskier investments ... worldwide. This movement of money only seems to have started over the past six months. This movement has been absent in the past four years or so before that.
Summary: The quantitative easing on the part of the Federal Reserve is going to continue, interest rates are going to remain at historically low levels (even if longer term interest rates tend to bump up a little in the near term), more and more money is going to flow into the "shadow" banking sector, and investors are going to continue to move into riskier investments.
I believe that we are going to see more buyouts and I believe that we are going to see more merger and acquisition activity. And, what takes place may not be as "conventional" as in previous times. This is because, as someone once wrote, "the times, they are a changin.'"