Rising yields will slow debt-funded M&A activity. We expect the pace of Technology M&A to slow as companies review M&A pipelines and landscapes, alternative M&A deal structures and alternative capital allocation choices in the face of rising Treasury yields.
Technology valuations are near an all-time high. A fresh $1.9 Trillion print could send equity valuations higher all else held equal. However, we are hardly operating in a vacuum. Two primary counter forces exist. First, Treasury yields are moving higher and are likely to continue to do so in our view until the Fed decides to exercise yield curve control. Second, corporate income tax rates are likely to climb during the first half of the Biden Administration. I for one would be slow to pull the M&A trigger given where Technology valuations are relative to history. Given the pace at which The Fed will be required to expand the money supply, rather than scoop up Bitcoin to offset a devalued dollar (ex. MicroStrategy), we believe public companies would be better served returning capital to shareholders in the form of a dividend (allow shareholders to buy Bitcoin if they wish).