It Takes Two to Tango. Don’t Expect M&A Activity to Accelerate Anytime Soon
Based on June quarter earnings call results, management teams have less visibility into Sales pipelines, Revenue forecasts and Profitability in the aggregate than several months ago. This in turn causes would be acquirers to haircut purchase price valuations if not walk away from deals entirely. In the former case, valuation haircuts typically either stall deal negotiations or kill them entirely. It takes two to tango, therefore we expect the pace of M&A closes to suffer as a result.
For Q3 2019:49 S&P 500 companies have issued negative EPS guidance and only 19 S&P 500 companies have issued positive EPS guidance.(source – FactSet).
Our view is that the September quarter will shed little light on the health of Sales pipelines due to seasonality associated with summer holidays (primarily across the U.S. and Western Europe). We won’t have sufficient useful data points in the aggregate until Q4 at the earliest when we may eliminate summer seasonality as a variable.