M&A, A Catalyst For The Recovery

Todays merger announcement from Merck reinforces my belief that M&A will likely be the catalyst that leads us to recovery. The market's current level of pricing is proving enticing to solvent companies seeking acquired growth and to the not so fortunate seeking to cash out and no longer fight the credit crisis.

Each acquisition helps the stock market heal. Commercial bankers are able to earn interest with loans to acquiring companies and, of course, the investment bankers will charge their advisory fees. An acquisition eliminates, say $20B, of stock from the market reducing supply, assuming a dearth of new IPOs. The acquiree's shareholders now have cash that needs to be redeployed in a shrinking market. Less supply should help to raise prices. A more robust earnings stream from quality commercial loans will also help the financials recover.

I have no idea when the market will turn, but a steady stream of completed deals will be beneficial. The deals are coming so we have a reason to be hopeful.