Deal Makers Are Ready for M&A Activity to Ramp Up
There may not be many deals in the offing right now, but Wall Street seems to be betting that conditions are about to become more favorable for deal makers.
Look no further than the recent stock moves of investment firms such as Apollo Global Management APO –0.32% (ticker: APO), which set a record high on Friday. Despite a tepid climate for mergers and acquisitions, some investors believe that deal activity has hit a bottom, and that future quarters will be busier.
“We’re not grinding down anymore, but rather it seems to us more that the market has found a base,” Oppenheimer analyst Chris Kotowski wrote in a recent note. “The next move in activity is more likely higher rather than lower.”
His bullishness isn’t just limited to Apollo; he also recommends shares of Blackstone (BX), Carlyle Group (CG), GCM Grosvenor (GCMG), Hamilton Lane (HLNE), KKR (KKR), Blue Owl Capital (OWL), and P10 (PX). So far this year, the asset managers in Kotowski’s coverage group, many of which grew from a private-equity core, have outperformed the S&P 500 by three percentage points, though the group is coming off a 2022 in which it lost 30%.
But if these firms feel confident enough to strike on a deal, they’ll have the wherewithal to do so. Kotowski found that for every $1 an investor pays for the asset manager, the firms he covers are sitting on an average of $2.15 of “dry powder” in private equity and real assets. With the macroeconomic outlook still uncertain, private-equity investors can put money to work at more appetizing valuations.