Research Alert

Topics: Credit Suisse, Switzerland, Financial services Pages: 25 (7116 words) Published: February 7, 2013
Global Research Private Banking Zurich Investment horizon: 6-12+ months

Research Alert


Top investment ideas

Dan Scott, +41 44 334 56 33

Top investment ideas Merger and acquisition activity on the rise


A selection of potential acquisition targets. See our list of potential M&A targets at the end of the report.

Early signs of recovery in M&A Along with financial market sentiment, M&A activity saw a spike in Q4 2012, with over 7000 deals worth almost USD 730 bn in value. This is the highest level in the last six quarters since anemic GDP growth rates in developed markets and uncertainty about the macroeconomic outlook pushed corporates to shelve any M&A decisions. Since our publication “Mergers and acquisitions: Have we hit the bottom?“ dated 4 September 2012, the Credit Suisse M&A 15 target list has gained over 12% and outperformed its benchmark (the MSCI World Index). We continue to monitor market developments and screen for M&A activity, and are now making changes to our target list.

The fourth quarter of 2012 saw a rebound in M&A activity and 2013 has already seen some large deals announced; we believe the trend could hold. 

M&A volumes and number of deals
2'000 1'800 1'600 1'400 9'000
USD bn


We have updated our list of 15 potential M&A targets. Mergers and acquisitions are a component of our top investment ideas for 2013. 


1'200 1'000 800 600 400 200 6'000 7'000


This alert is for risk-tolerant equity investors interested in the M&A theme and who are following or already invested in our M&A 15 list. 



2001 Q42002 Q42003 Q42004 Q42005 Q42006 Q42007 Q42008 Q42009 Q42010 Q42011 Q42012 Q4 M&A deal volume Deal Count

Source: Bloomberg, Credit Suisse

Important disclosures are found in the Disclosure appendix. Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For a discussion of the risks of investing in the securities mentioned in this report, please refer to the following Internet link:


Merger and acquisition activity on the rise


Credit Suisse - Research Alert

Performance of the Credit Suisse M&A 15 target list

12-month forward P/E -S&P 500 since 1988
12-month forward P/E





90 Sep 12 Oct 12 Nov 12 Credit Suisse M&A 15 Target List Dec 12 MSCI World Jan 13

26 24 22 20 18 16 14 12 10 8 Jan 88 Jan 92 Jan 96 Jan 00 Jan 04 Jan 08 Jan 12 S&P 500 Average +/- 1 Standard Deviation Source: Datastream, Credit Suisse / IDC

Source: Bloomberg, Credit Suisse

Outlook for M&A is improving Of the four main drivers we see for M&A activity (large corporate cash holdings, cheap targets, low cost of debt and increasing business confidence), three are currently positive. As the chart below shows, US non-financial companies are holding around 4.5% of total assets in cash. The ratio of cash to total assets is off its highs, but still close to all-time highs. Large cash holdings provide a source of funding, and given that most developed nations now face negative real interest rates, companies have high incentives to put their cash to use.

The low cost of financing is the third driver for increasing M&A activity. As government yields remain at low levels, investors’ search for yield has increased demand for corporate issuers. The increased demand lowers financing costs for corporates, and we expect high-grade corporate bond yields to stay at low levels. This cheap money can be used to acquire competitors.

US 10-year Treasury yield vs. aggregate corporate bond yield %

US non-financial corporate sector: Cash/total assets...
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