Hey it’s Strategic Bites. We’re here spoon-feeding you knowledge so you can maintain whatever superiority you have over people at work.

Today we’re talking why deal-making is down and why it might matter for you, or your job, or why you won’t make your quota this quarter.

Notes:

We’re sorry for missing a couple of issues these days.

Families + Responsibilities and the opportunity to nurse any euphorias is coming first these days.

IT’S UNDER 9,000!: Dealmaking Edition

M&A is at a global 10-year low.

Why? Interest rates and tighter regulation. Duh.

• This 1-2 punch has especially messed with valuations for technology deals. While those values have dropped significantly, most other sectors have maintained or slightly increased valuations.
  

• Here’s the other part of the cycle: if valuations drop, so do exits. We’re seeing that PE exits have slowed too, and corporate divestitures have also decreased.

Does this have anything to do with the Amazon FTC garbage you guys were talking about?

A great example! Now you’re getting it! The FTC is in a high profile clash with Amazon right now, and that would affect any efforts to consolidate companies in other sectors because those mergers would get a lot of scrutiny.

I guess that kills our dream to sell blue jeans cassette tapes to Brooklyn Without Limits.

How do interest rates hinder M&A?

Another great question! Here’s a totally non-condescending answer in 5 points:

1. So when a company sees an opportunity to buy a company, they have to get something called ‘Money’ to buy it. That ‘money’ comes from a bunch of different sources.
   

2. The company pays for it in 3 ways, typically

   • The company just has the cash lying around (wow silly just pay for our healthcare lol)

   • It raises the cash through a stock sale, and sometimes

   • It goes to a bank for debt financing
     

3. With interest rates being so high, it slows lending down, which slows business down.
   

4. That throws off valuations, and it makes it more expensive to borrow.
   

5. So the company might just avoid buying the other company until the time is right

What happens now?

One word: getting ready. If you see a lot of companies trimming excess fat (laying off people, trimming large expenses, selling off other divisions), it means they’re either priming themselves to buy a large piece of something or getting ready to be bought when the time is right, most likely in the next 12-24 months.

For context, see the 2 red circles below - the left one is post-2008, and the right one is 2022/23

What AI made this week

RIP to our #1 boy, Michael Gambon

Have a great week!

Ahmed and Peter