The M&A market is also expected to be impacted by the interest rate hike, which is just around the corner. Some corporations and private equity may be holding back on fears that the U.S. Federal Reserve potentially mishandling the interest rate hike, which is expected to come at the next meeting on Dec. 16.
Although the rate hike is expected to start slowly with a gradual increase through the first half of 2016, analysts from Deutsche Bank warned this week that the Fed may raise rates more quickly than the market currently expects. If this happens, the M&A market will likely see broad-based impacts possibly leading to a steeper slowdown than currently projected.
“It’ll be interesting to see how the markets absorb a US rate hike, although nominal with a predicted 25 basis point jump,” Porzio told ValueWalk. “The equity/debt markets reacted pretty strongly to the European Central Bank’s weaker than expected stimulus. Along with a stronger U.S. dollar, in general, we’re interested in seeing how M&A financing will be impacted.
“This is a record year for deals valued at over $1 billion – we’re already at 530 deals through November 2015 vs. 499 in all of 2014, so the larger strategic deals are still getting, and will still get done,” he added. “The middle market is where we really may see the impact from rate movements, especially where deals are highly leveraged based on the valuation environment.”