BREAKINGVIEWS-Dealmakers jazz up glum outlook in New Orleans

By Jeffrey Goldfarb

NEW ORLEANS, March 7 (Reuters Breakingviews) - It’s easy to be cheerful in New Orleans, where brass bands play lively music even at funerals. Merger advisers reveled in that spirit during their annual Crescent City conclave this week, despite mounting evidence that deal activity is getting buried.

A day after Mardi Gras festivities wrapped up on Bourbon Street, roughly 900 lawyers, bankers and other M&A consultants gathered nearby to assess the state of corporate unions for the 37th Tulane Corporate Law Institute. The figures are bleak, despite the financial exuberance that initially followed Donald Trump’s presidential election victory in November.

The nearly $500 billion of deals announced worldwide through March 5 represents an 11% drop from the same span last year, according to LSEG data. Even more notable is the dearth of mega-mergers that typically elevate confidence among CEOs. And the total number of transactions, at around 7,000, is down 38% from the year-to-date peak a few years ago, notching the lowest tally since 2014.

Deal practitioners acknowledged unpredictability largely caused by flip-flopping policy from the White House. They nevertheless pointed to the vast sums of capital available, lower interest rates and potentially laxer trustbusting. “It’s hard to see the year ending on a slow note,” said Scott Barshay, who chairs the corporate department at law firm Paul, Weiss.

Other conditions are improving, too. Valuations have crept back up toward their nine-year median of about 12 times EBITDA, an indication that buyers and sellers are closer to seeing eye-to-eye, Houlihan Lokey managing director Jennifer Muller said. She also noted the $3.4 trillion of cash on balance sheets of S&P 500 companies and their collectively healthy net debt of 1.7 times EBITDA.

Buyout firms, meanwhile, are under growing pressure from investors to sell down ageing portfolios and put large stockpiles of raised funds to work. “I’m expecting we are going to see a relatively strong deal market in the second half,” Ropes & Gray Vice Chair Neill Jakobe said. Added Maggie Flores, a partner at Kirland & Ellis: “Uncertainty brings opportunity.”

Breaking news just ahead of and during the conference supports the measured confidence. Money-managing goliath BlackRock BLK.N unveiled a provisional $23 billion acquisition of ports in Panama and elsewhere owned by CK Hutchison 0001.HK, while drugstore owner Walgreen Boots Alliance WBA.O agreed to be bought by private equity firm Sycamore Partners for as much $24 billion, including debt and potential earn-outs.

Even so, the list of impediments to sustaining this momentum runs long. Trump’s chaotic tariff decisions, which also threaten to increase inflation, give CEOs pause about whether or where to spend and how to value takeover targets. Stock volatility just reached its highest level in almost two years, as measured by the CBOE Volatility Index .VIX, and the global economic uncertainty index is at an all-time high. U.S. consumer confidence and GDP growth expectations are also waning.

Equally worrisome is the wishful thinking, widely shared in the M&A community, that erratic policymaking will taper off or come to an end. Trump, however, has given no indication that his mercurial style of leadership is going to change. Dealmakers expecting otherwise are whistling past the graveyard.

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CONTEXT NEWS

The 37th annual Tulane Corporate Law Institute took place March 6 - 7 in New Orleans.