Business Insight Zone

A quick observation in line with my earlier comments on the nature of the IPO market: It’s worth remembering that there are (at least) two levels of a “market” for merger & acquisition activity:

1. The overall market for M&A. At times this runs sky-high, as it did for tech companies during the boom that ended in 2000, and as it did over the past couple of years for private equity firms doing buyouts. It’s obvious, yet still worth noting, that this broader market is highly sensitive to macroeconomic conditions; witness the current drying-up of liquidity — or just deal-making aggression — among the financial houses.
2. The specific market for a particular asset. Ingersoll-Rand is ponying up quite a chunk of money ($10 billion) for Trane because it believes that adding Trane’s product lines to its own with (a) make it more dominant in the worldwide HVAC industry; (b) insulate it further from the cyclicality of its other businesses; and (c) allow it to operate the Ingersoll-plus-Trane HVAC businesses at a cost savings. The point isn’t how the overall M&A market looks, but how appealing Trane-in-particular is to Ingersoll-Rand-in-particular.

Maybe this is all obvious stuff, but I find that even the obvious bears repeating, especially in light of the business media’s tendency to over-identify trends in the marketplace. Yes, of course there are macro trends, but the presence of them doesn’t necessarily affect the likelihood of a particular deal.

Category: Deals, Economics