Donald Drapkin, Founder and Partner of Casablanca Capital and former Lazard Vice Chairman, says there are sectors that are ready for big consolidations.
What do mergers and acquisitions (M&As) have to do with your stock portfolio? That depends on what time framer you’re look at.
According to Matthew Toole at Thomson Reuters, the correlation coefficient between worldwide M&As and the S&P 500 index has been 0.82 for the last twenty years.
That means since 1993, if there was a growth in mergers and acquisitions in a particular quarter, you had a pretty good chance of seeing a rising stock market that quarter, too (remember: correlation is not the same as causation).
But, for the last four years, things have changed: The correlation between M&As and the stock market have diverged. A lot.
From 2009 to 2013, the correlation coefficient between the two dropped to 0.30. Want some proof?
The number of worldwide M&A deals has fallen 18% from 2012 Q2 to 2013 Q2. And, according to Dealogic, global M&A activity is down 23% from the first half of this year compared to last year, the lowest it’s been since 2004. Meanwhile, the S&P 500 is up over 24% over the last twelve months.
Even though there’s a divergence between M&As and the market, that doesn’t mean there are no M&A deals to be had.
There’s no better person to ask about what sectors could be ripe for consolidation than Donald Drapkin, Founder and Partner at Casablanca Capital. In a previous life, Drapkin was Vice Chairman of Lazard so he knows more than a thing or two about mergers and acquisitions.
In an interview with Talking Numbers, Drapkin says there are a few industries ready to consolidate. To find out what they are and how you may be able to profit from it, watch the video above.
Watch the video above to hear what industries Drapkin feels are ripe for takeovers.