Headline Risk

By Adam Reinebach, M&A Magazine

June 2, 2008

As quickly as many in the financial media declared the LBO market dead a few months ago, business news sites are now suddenly full of pronouncements that private equity is back, baby! Perhaps fatigued by months of negativity, reporters seem to be latching onto every sign that M&A activity is improving—from optimistic comments at M&A events to general partners who aren’t returning phone calls to reporters as quickly as they used to.

I don’t bring this up to rain on the M&A parade—I’m often accused of being too much of a mid-market cheerleader—nor am I looking to bash the financial press. Rather, I bring it up because it highlights a new challenge that capital markets professionals are now forced to deal with: In an online world where information travels at a lightning-fast pace, market sentiment has become increasingly fragile.

We’ve all seen it happen. News of a struggling deal hits the wires, it’s immediately re-reported on numerous web sites, and within 24 hours the affected parties are being interviewed on CNBC. The next day you read a few paragraphs in a newspaper on the train ride in to work, you discuss it with a colleague at the watercooler who read a similarly negative story, and pretty soon you’re crucifying a deal and the CEO driving it, despite having incredibly limited knowledge.

Of course, this also happens in politics, Hollywood or sports. But one question for the M&A market to consider is, at what point does public opinion, which is often shaped by the pervasive financial media, start creeping into the mind of a seller, an investor, or even a lender?

Next time you have a meeting or conference call to discuss a transaction, I would urge you to Google the names of the buyer and seller, and see what’s been written. If the seller just read a story about ‘multiples on the mend,’ the bargain you were expecting could get expensive real quick.

Adam Reinebach
Publisher
adam.reinebach@sourcemedia.com