Deals & Deal Makers: Rate Cut May Encourage Mergers
NEW YORK -- The Federal Reserve's surprise rate cut could help step up the pace of mergers and acquisitions in early 2001.</br></br>The momentum that generated eight straight record years for M&A expansion began to falter in the second half of 2000 because of stock-market gyrations and a correction in valuations that damaged the purchasing power of potential acquirers. Jitters about the economy and market volatility prompted investment bankers and M&A lawyers to predict a sluggish start to 2001.</br></br>But with the Fed's rate cut, announced earlier than expected, some of those concerns could be alleviated. "To the extent that CEOs and decision makers become more positive about the economy, it's going to lead to decisions being made sooner rather than later," said Rick Escherich, a managing director in J.P. Morgan's M&A group. "There's still a tremendous amount of activity going on under the surface, but there's been reluctance to pull the trigger on deals."</br></br>The degree to which CEO confidence is restored, however, still hinges on how successful the Fed's move is in bringing in a soft landing for the economy.</br></br>At this stage, it is too soon to gauge that impact, according to bankers. "It's obviously a step in the right direction, but we need to see a continued improvement in the rate environment coupled with a tightening in credit spreads to see a significant impact in M&A activity," said Rick Leaman, head of mergers and acquisitions at UBS Warburg.