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LPC: US bankers try to boost post-election M&A activity

| NEW YORK

NEW YORK Oct 13 US bankers desperate to book revenue before year end are trying to boost leveraged M&A activity by pushing deals through after the looming presidential elections, which could create a busy finale for a volatile year.

Deals that have yet to be announced could be rushed to the market before the end of the year to help pad out low M&A issuance in an unusually busy end to 2016, which has been dominated by political and macroeconomic events.

US leveraged M&A volume of US$62.74bn was 47% lower in the third quarter compared to US$118.68bn a year earlier, according to LPC data, as uncertainty over the elections, corporate earnings and the prospect of Brexit took a toll on private equity and corporate leveraged acquisitions.

Bankers are facing an uphill battle to meet budget targets after a slow start to the year in the US leveraged loan market after investors were spooked by low oil and commodity prices and slow growth in the US and China in late 2015 and temporarily stopped lending to most non-investment grade credits.

Recently-announced leveraged M&A deals, including sporting goods retailer Bass Pro Shops' US$5.5bn acquisition of hunting and fishing store Cabela's Inc, could be launched to the market before the end of the year, sources said. Banks have provided US$5.1bn of debt commitments to finance the acquisition, which was announced on October 3.

"Some years there's sort of a relaxing at the end of the year," said Richard Farley, a debt financing partner at Kramer Levin Naftalis & Frankel LLP. "But given how soft things were in the first quarter, in particular, I think there's a lot of appetite for getting as many deals in as possible before the end of 2016."

UNUSUAL DYNAMICS

Investment bankers are facing a fourth quarter holiday period that has been further complicated by an increasingly bitter US presidential election, scheduled for November 8.

Although cash-rich investors are already discounting the election result, borrowers are reluctant to be in the market for fear of any ensuing volatility that could disrupt the market or derail deals.

"If you poll investors none of them think that the outcome of the election is going to have a material impact on the credit markets whatsoever," said one banker. "But none of the issuers want to be in the market seven days before the election or three days after. Why be in the market when a timeframe may or may not have some volatility?"

This leaves two clear windows to get deals done, the first immediately after the election and the second post Thanksgiving. Both times are expected to be busy, particularly if Hillary Clinton wins the election, which is expected to improve sentiment and activity.

"I think you have now for the first time in a while a little bit more optimism, and I think a lot of that has to do with people thinking that Hillary (Clinton) is going to win the election and that Brexit hasn't had a big impact and the Fed hasn't yet started to really raise rates," Farley said. "It seems a bit more stable. But it's still not wildly robust by any means."

Most of the US M&A deals in the pipeline are smaller with enterprise valuations of less than US$2bn, which means that it should still be possible to announce and price deals of up to US$1bn before the end of the year.

The active middle market space, in particular, is likely to see deals announced and financed before January, according to Steven Rutkovsky, a debt financing partner at Ropes & Gray LLP. But not all of these deals will be syndicated as non-bank lenders have raised large amounts of capital that they are keen to put to work.

"The time period between signing and closing has become quite compressed, particularly for smaller middle-market deals," Rutkovsky said. "In those deals, financing is often preplaced or arranged with a small group of lenders and therefore is not dependent on the syndicated loan or high-yield markets." (Reporting by Jonathan Schwarzberg; Editing By Tessa Walsh and Jon Methven)

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