Jeremy Grantham: M&A Boom Poised For a ‘Veritable Explosion’

From MoneyBeat:

Money manager Jeremy Grantham has a track record that’s difficult to ignore. He predicted the Internet bubble, he saw the housing crisis and he almost perfectly timed the market bottom in early 2009. Now he’s out with a bullish–very bullish–call on the M&A market.

Mr. Grantham says the recent deal frenzy, which has gained steam this year with Comcast Corp’s $45 billion deal for Time Warner  Cable, AbbVie 's $54 billion pact for Shire  PLC and 21st Century Fox 's $80 billion offer for Time Warner, is just getting starting. He predicts every type of M&A record will be broken over the next couple of years, as companies take advantage of low interest rates and a recovering economy.

“Don’ tell me there are already a lot of deals,” Mr. Grantham, co-founder and chief investment strategist of GMO, a Boston-based money management firm, wrote to clients on Friday. “I am talking about a veritable explosion, to levels never seen before.”

He cites three reasons for his prediction: The cost of debt is currently lower than it was in 2000 or 2007, profit margins are at high levels and poised to stay there, and the economic recovery looks poised to pick up steam. Corporations are also expected to increase capital spending as they gain more confidence in the painfully slow economy, in its sixth year of the recovery cycle.

“The very disappointment in the rate of recovery thus becomes a virtue for deal making,” Mr. Grantham said. “If I were a potential deal maker I would be licking my lips at an economy that seems to have enough slack to keep going for a few years.”...MORE