Morgan Stanley's M&A Prediction ❓

🥂 Morgan Stanley predicts a 50% uptick in M&A activity March 7, 2024 | Peel #662 Silver Banana goes to... [SRS Acquiom. ]() In this issue of the Peel: - ✂️ Everyone’s praying for rate cuts, but when will it happen? - 🤖 CrowdStrike profits off cyberattacks the way Pfizer profits off pandemics… - 🥂 Morgan Stanley predicts a 50% uptick in M&A activity! Market Snapshot 📸 = Banana Bits 🍌 - Powell gave us a glimpse at the state of the [interest rate rodeo](=) - NYCB is getting $1bn in [funding from investors,]() including former Treasury Secretary Steve Mnuchin - Value investors rejoice! It’s a stock [picker’s market]() - Interest payments are [mooning more]() than digital assets for U.S. consumers Due Diligence Trends: Data You Can Bank On What do 150 senior executives at U.S. investment banks with up to $1 billion in AUM know about due diligence? Shocker: quite a bit. That’s why SRS Acquiom and Mergermarket teamed up to talk with them about it. The survey covered both buy-side and sell-side, and included the bulge bracket, the boutique, and those firms in between. They had plenty to say, especially given how important it is to stay ahead of the curve in an M&A market like this one. A few spoilers: Is due diligence taking longer? Yep. Is regulatory scrutiny rising? Sure is. The point is, there’s a whole lot of intel to be absorbed (and applied), and it’s all in the new SRS Acquiom M&A Due Diligence Study. [Download it while it’s hot.]() Macro Monkey Says 🐒 JPow Tossing Treats You know how when you say something like “walk,” “outside,” or “want a treat?” to a sufficiently conditioned dog, and they get all hyped up and start wagging? That’s the exact same feeling traders get when they hear the Fed Chair say “rate cuts.” So naturally, there was a helluva lot of tail wagging on Wall Street yesterday when Federal Reserve Chairman Jerome Powell signaled that rate cuts remain “on track” in 2024. But, markets and interest rate futures didn’t move much in response to what, on paper, seemed like dovish commentary. Let’s get into it. What Happened? Needless to say, the rate hiking cycle over the past 2 years has been absolutely nauseating. Plus, the turbulence crated by rising rates hits especially high coming on the back of over a decade of nice, clear, 0% skies. When the storm hit in 2022, the flight was rocky until mid-December of last year, when JPow’s “dovish pivot” appeared to be an implied declaration of finally landing this plane pretty damn softly. And yesterday, Powell gave us the latest scoop. Testifying to the House Financial Services Committee yesterday on Day 1 of a two-day roast session on Capitol Hill, Powell promised his market-based dogs plenty of treats by the end of the year, as long as we and the economy keep being good boys. The phrase that stole the show was, “When we reach that confidence, the expectation is we will do so sometime this year, we can then begin dialing back [interest rates]." But clearly, it didn’t have much of an impact on market expectations for rate levels going forward. [Source](=) If we look at the above chart and the table underneath, we can see that Powell’s comments had little impact on rate levels by December of this year. There was a slight increase in expectations for rates to be within the ranges of 4.5%-5.25%, offset by a decrease in the ranges from 4%-4.5%. And much of the reason for this lack of tail wagging and excited yelping was linked to one phrase Powell dropped: “assured.” Basically, Powell said rate cuts aren’t expected to begin until the committee feels “assured” that inflation is back at their 2% rate. What Does That Mean? Honestly, Powell probably doesn’t even know exactly what he meant with that line. Another classic example of Fedspeak, it’s a term we can use now and define later. This gives the Fed options as opposed to pigeon holing themselves to begin cutting rates as soon as whatever metric reaches a certain level. Now, there’s some flexibility around it. We know the Fed prefers the core PCE, but whether they want to see inflation at 2% annually, 2% annualized, or what is a mystery. [Source]() But don’t worry—Powell did try his best to speak in clear, full sentences at certain points, too. He added specifics on their approach to rate cuts and monetary loosening (not easing), saying, “We can approach rate cuts carefully and thoughtfully.” Wow—thanks, Chair JPow! Almost as insightful as when he added… “Reducing policy restraint too soon or too much could… require even tighter policy to get inflation back to 2%... at the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.” … as if that’s not what everyone who’s sat through a Macro 101 class hasn’t been thinking about since March of 2022. The Takeaway? Powell is setting up future rate cuts but is not allowing the market any insight as to what developments need to be made to allow the Fed to continue cutting. This is a masterclass in communications. By not signaling the necessary metrics the Fed wants to see, they maximize their freedom to make that choice whenever they want to, without having to worry about satiating market expectations based on prior guidance. We’ve got another day of roasting later this afternoon, so stay tuned for more game to be spit from the Chairman himself. For now, it’s time for the Patagonia vest wearers among us that love to call themselves “dawgz” to realize they’re actually just another one of JPow’s dogs. What's Ripe 🤩 CrowdStrike (CRWD) 📈10.8% - Pfizer loves pandemics, CrowdStrike loves cyberattacks. And the latter is thriving in this pandemic of cyber crime, posting strong results in Q4. - EPS of $0.95/sh on $845mn in revenue smashed expectations. Plus, management reiterated ambitious guidance for $10bn in recurring revenue by 2030. - Full-year revenue rose 36% to $3bn in 2023. Execs were hyped too, labeling the firm “Innovator of choice, and platform of choice to stop breaches.” Palantir (PLTR) 📈9.9% - How does a new $178mn sound? Personally, that’s obviously chump change to me, but clearly it sounds good to analysts. That’s what Palantir just got. - The defense-tech firm was awarded a contract of nearly $178mn to build 10 TITANs for the U.S. Army. Back in 2022, they got $36mn to build some as well. - TITANs are essentially the DoD’s version of trailer parks/mobile homes, but it’s yet another proof-of-concept and capability for Peter Thiel’s firm. What's Rotten 🤮 Foot Locker (FL) 📉29.4% - Foot Locker’s referees and Wall Street traders alike are throwing flags all over the play today, as yesterday’s stock move clearly warrants a challenge. - One-time charges took Foot Locker to a surprise loss in Q4, losing $4.13/sh on a GAAP basis vs the $0.20/sh earned for Q4 last year. - Sales rose only 2% vs last year, but the worst part was new guidance that delayed hitting the goal of a 9% EBIT margin from 2026 to 2028. Nordstrom (JWN) 📉16.1% - Falling victim to the rookie Wall Street mistake of being honest, Nordstrom shares are getting slammed on a projection for a sales drop in 2024. - In Q4, Nordstrom did beat on both the top and bottom line, reporting $0.95/sh on $4.42bn vs the $0.88/sh on $4.39bn expected. - Despite opening new Nordstrom Rack locations, deflationary pressures in discount apparel are taking a big chunk of the top line. Thought Banana 🤔 We Are So BACK Breaking News: Cats are calling for a 50% increase in catnip production this year. Oh wait, my bad—I read the headline wrong. I meant to say that Morgan Stanley is calling for a 50% increase in M&A activity in 2024. But whatever, both headlines are basically the same thing. M&A is Back? I don’t mean to bring up the traumas that you sell side analysts have gone through over the past few years, but it’s been rough in terms of volume for mergers and acquisitions. But, what Morgan Stanley calls the “winter” for M&A is (allegedly) “thawing.” [Source]() Since 2021, we can see that the global aggregate M&A volume has declined by more than half. This sector is used to a little volatility, but not these kinds of swings that are more dramatic than a fight on Love is Blind. According to Morgan Stanley, that is all about to change. The investment bank expects lower—or at least normalized—borrowing costs as rate cuts begin to materialize later this year. Cash and debt are preferred, whereas equity costs look “less attractive.” As a result, an increase in bridge loans—or short-term debt financing—is anticipated alongside the rise in transaction volume. [Source]() For sectors, MS expects tech, real estate, staples, and healthcare to lead the way in bringing the industry back to normal M&A volume. The Takeaway? Companies appear to be getting more and more used to this idea of “higher for longer.” Plus, with the expectation of rate cuts later this year, the latter half of 2024 is expected to solidify 2024’s bonus season as a whole lot healthier than 2023. This return to normalization isn’t relegated to M&A transaction volume either. This reflects a broader normalization of liquidity levels. When M&A picks up, so does startup funding, IPOs, and all that other fun stuff that newsletter writers love to see. Fingers crossed, it actually works out. 💭 The Big Question 💭: How right/wrong will Morgan Stanley’s projection for a 50% increase in M&A volume be? Which sectors and companies will see the biggest benefit? Banana Brain Teaser 💡 Previous 🗓 Running at their respective constant rates, Machine X takes 2 days longer to produce w widgets than Machine Y. At these rates, if the two machines together produce 1.25w widgets in 3 days, how many days would it take Machine X alone to produce 2w widget? Answer: 12 days Today 🕐 During a trip that they took together, Carmen, Juan, Maria, and Rafael drove an average (arithmetic mean) of 80 miles each. Carmen drove 72 miles, Juan drove 78 miles, and Maria drove 83 miles. How many miles did Rafael drive? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “We're not lawyers, we're investment bankers. We just call you for the paperwork. ” — Jonathan Sidwell, Suits How Would You Rate Today's Peel? 😁 [All the bananas]( 😐 [Meh](=) 😩 [Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE](=) // [WSO ALPHA]( // [ACADEMY]( // [COURSES]() // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353