Sunday, January 09, 2005

Profiting from M&A advisors.

Apart from guessing takeover targets, buying into the stock of M & A advisors also provides a way of profiting from a buyout boom. The latter strategy is less risky given the solid financials of these Wall Street majors, but correspondingly promises a smaller return since most of them are already fairly valued by the market.

Here are the players :
  • Goldman Sachs (GS)
  • Morgan Stanley (MWD)
    Goldman Sachs is the leader and should see substantial pickup in fees from deals in the coming years. Morgan Stanley could see an additional upside from divesting some of its businesses. Both pay a small dividend, but I think they will follow others in announcing increased payouts soon.

  • JP Morgan (JPM)
    These guys participate in M&A more directly as well, through their private equity arm. The dividend is rich and the stock itself is not overvalued.

  • Bear Stearns Co. (BSC)
  • Merrill Lynch (MER)
    These 2 M & A advisors have an additional upside in that they are themselves potential takeover targets for the likes of Citigroup and Deutsche Bank - hopefully at a decent premium. The dividend yield right now is ~1%, but an increase in payouts is very possible too.

    I own a very small number of shares of both and will be watching for more buying opportunities.

  • Citigroup (C)
    Its M & A business is really negligible and any increase in activity is unlikely to make a difference to Citigroup's overall earnings. While the dividend is rich, there could be more skeletons in the scandals cupboard here. Still, if you don't mind holding onto the stock for 5/7 years, it is a buy right now.
    There will be additional downside pressure on the stock if Citigroup, as rumored repeatedly, tries to enter/expand into the mortgage, west coast banking or investment banking sectors via a costly acquisition.

  • Greenhill & Co (GHL)
    This newly public company is another good bet. I own a few shares, and plan to buy more slowly.


At 10:50 PM, Blogger diluted-mind said...

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