H&W in the Media
Shrinking Takeover Premiums Show Bearish Case in U.S. Stocks
After climbing 1.5 percent in 2015, the S&P 500 is valued at 18.7 times annual profits, compared with 16.6 over the past 10 years. Price-earnings ratios for S&P 500 companies have expanded by almost 70 percent during the bull market that started in 2009, while valuations tied to sales are the highest since just after the dot-com bubble burst in 2000.
S&P 500 E-mini futures expiring next month slipped 0.2 percent at 10:16 a.m. in London.
Typically when a deal is announced, few stocks go straight to their takeover price, reflecting everything from regulatory concerns to skepticism about financing. But shares of companies being taken over are also posting smaller gains as the offering prices tend to shrink when shares are already high. The average takeover premium this year is 28 percent, the smallest since 2007, when it was 23 percent. The highest spread in the past decade was an average of 41 percent, reached in 2009.
“In the past 12 to 18 months M&A has really ramped up, so then it becomes a question of whether the acquirers are being as aggressive and setting high acquisition prices,” Kevin Mahn, president of Parsippany, New Jersey-based Hennion & Walsh Asset Management Inc., said in a phone interview. “The market is fairly valued or somewhat overvalued. They don’t have to be quite as aggressive so the prices don’t have to be as high.”