A 'frenzy' in mergers & acquisitions expected before the end of the year

Tom Bohn, CEO and President of the Association for Corporate Growth, talks about the perfect storm leading to M&A near the end of the year, and the sectors where the deals will be.

Video Transcript

SEANA SMITH: M&A activity setting records this year. In the third quarter, global M&A hit an all-time peak of 1 and 1/2 trillion US activity alone, up just around 32% to $581 billion. Let's talk about what to expect in the final months of the year. And for that, we want to bring in Tom Bohn. He is the CEO and president of ACG Association for Corporate Growth. Tom, it's good to see you again. I know you represent 90,000 mid-cap company executives and M&A professionals. So what are you hearing from them? Are we-- should we expect to see a frenzy into the end of the year?

TOM BOHN: Without a doubt. This is what we're calling Deal-apalooza. And it's really four key things that are kind of building this perfect storm that we're seeing right now. I mean, as you have talked about on your show quite a bit, expected tax changes. We don't know where that's going to come from or what that's going to look like yet, but there's a lot of concern, particularly around carried interest, so getting deals done before the end of the year. PE is flush with money. They have essentially a trillion dollar wallet.

And then there's another $270 billion that's coming from private debt in general. So just a ton of money sitting on the sidelines. You know, we are looking at this whole idea of building platform focused business models. And PE is fantastic at it. Your last guest talked about that from the mammoth car wash business, which, by the way, is also backed by private equity and creating jobs. So thank you to them.

So we're seeing this model being played out, whether it's in health care or car washes or whatever the case may be. But it's becoming more and more prominent. And finally, number four, we're seeing that people are absolutely exhausted. Aging generation of business owners coming out of post-COVID, and they are ready to sell.

ADAM SHAPIRO: The great resignation, right? Just out of curiosity, with so much-- I think it was 1.52 trillion we were showing you in the graphic. With so much cash available, does it matter what happens with interest rates? I mean, next year looks like we would continue to be on fire.

TOM BOHN: You know, I think it all depends. It depends on what happens with inflation, and it depends on what happens with interest rates. And it also depends on what happens with this tax bill. We are expecting it to slow down after the first of the year. The question is, how much is it going to slow down? Is it going to be precipitous, or is it going to be kind of gradual and just kind of letting everyone catch their breath for a minute? But I can tell you right now, it is incredibly hot in this market.

SEANA SMITH: In terms of what you're seeing right now, I guess, what do you expect to lead? Because we saw, well, really most sectors, I guess, really saw a surge in deal-making during the first nine months of the year. I know software was one area that was a particular standout. But what should we expect going into the final months?

TOM BOHN: Right now, health and beauty is on fire. Fintech is absolutely on fire, and manufacturing, believe it or not, as well as industrials. So those are kind of the big four that we're seeing kind of at the top of the list right now. But who knows what will be coming soon? Certainly anything related to this kind of post-COVID normal has been seeing a huge bump overall.

ADAM SHAPIRO: Wouldn't we expect to see-- I'm looking at the list you sent us of where the deals are-- fintech, health, beauty, manufacturing, industrials, as you just said. Why not commercial real estate? It's depressed right now. Seems like an opportune moment for companies to merge and become stronger to get through whatever the next couple of years holds. But if the population keeps growing, which we expect it will, they're going to need that real estate, won't they?

TOM BOHN: You know, it's interesting because we're seeing a number of different things on this. We're seeing a pivot in terms of the large big box commercial realtor or properties turning into apartments and the like. We're seeing a lot of money pour into that. But then, some of the anomalies-- New York City, which everyone wrote off as being dead, is now becoming a huge center for Apple and Yahoo and the rest of them going in there.

So, it's kind of a mixed message there still. And I think people are trying to still shake out what the new normal is. I don't know that we're absolutely at the bottom of what that looks like.

SEANA SMITH: And Tom, just going back to the fact that you talk with 90,000 mid-cap company executives and M&A professionals, what is their biggest worry as they look out over the next 6 to 12 months?

TOM BOHN: The thing that I hear regularly is labor, labor, labor, getting good talent, keeping good talent, and making sure that they're able to fulfill orders. And that impact on the supply chain, something we're also talking a lot about with our members, is real. It's happening. And, you know, they are very, very concerned that they don't have the capacity in the labor market to actually be prepared for this upcoming holiday season.

ADAM SHAPIRO: Are they having-- I saw the article-- I think it was in the Journal yesterday-- about the stay conversation with employees. What can we do to keep you as opposed to losing you?

TOM BOHN: Yeah, yeah. We had that-- we did a recent report that talked about what was the things that the employees were looking for most. And the number one thing that they talked about was flexibility, which, again, has an impact on the commercial market. So there's no longer that feeling or that desire to be there five days a week. At a maximum, they're looking at three days a week. So, again, I think how that all shakes out in terms of commercial office space is going to be really, really interesting.

SEANA SMITH: Tom Bohn, CEO and president of the ACG, the Association for Corporate Growth, always great to speak with you. Thanks so much for joining.