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Senior Banker Predicts Robust Deal-Making Will Continue

NEW ORLEANS — If the opening comments from one of the senior deal makers at the Tulane Corporate Law Institute here are to be believed, the good times for mergers and acquisitions will continue to roll.

In his speech, Greg Weinberger — named last week as Credit Suisse’s co-head of global mergers — said that the conditions for robust deal-making aren’t likely to change anytime soon.

But surprisingly, he also said that the outsize returns that have driven the red-hot burst of shareholder activism were due for a slowdown.

First the numbers: $3.5 trillion in mergers and acquisitions were announced last year, mostly on the high end and largely in the United States. The confidence of chief executives and boardrooms continues to be robust, meaning that companies are more willing to take the risk of pursuing a deal.

“Our perspective is that M.&A. is primarily confidence driven,” Mr. Weinberger said. “It’s pretty high.”

That’s despite the relative collapse of some practices, like corporate inversions — the much-ballyhooed type of deals in which American companies buy foreign counterparts to reincorporate abroad and lower their tax rates.

Even a 153 percent rise in withdrawn transactions reflects increased confidence, according to Mr. Weinberger, because that simply means more management teams are more comfortable pursuing takeovers that don’t necessarily pan out.

The banker also predicted that more hostile takeovers may arise. After all, the stock price of acquirers, on average, has continued to rise after a deal is announced, suggesting that shareholders support aggressive pursuits of growth

“This should be an era where you should see hostile M.&A. done,” he said.

But Mr. Weinberger added an interesting wrinkle to his speech, saying that activist investors may face lower returns in the future. Much of the low-hanging fruit, in the form of companies obviously ripe for breakups or board management changes, has been picked, he contended.

Activism is popular, with 513 campaigns last year, the most in five years. The amount of capital overseen by activist investors has soared to an all-time high of about $120 billion. And institutional investors like huge mutual funds have continued to demonstrate support for dissidents pursuing seats on corporate boards.

Agitation, which has been a primarily American phenomenon to date, also has shown signs of extending abroad, even if initial efforts in Europe have met with mixed results so far.

The tactic has been a powerful driver of deals, as investors push target companies to pursue sales of themselves or break themselves apart.

But that run may eventually taper off. Mr. Weinberger pointed out that many corporate breakups spurred by activist investors, like those of Apache and Dow Chemical, met with relatively tepid interest last year.

That may mean that activists will have to go to greater lengths to seek new targets for their efforts, like pursuing some of the newly public companies spun out from existing corporations, or live with lower returns.

“The other thing I have to infer is that their alpha goes down,” Mr. Weinberger said, referring to the investment returns activists generate above and beyond overall stock market performance. “Maybe.”

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