 Alright. Good afternoon everyone. My name is Andy Server. I'm the editor chief of Yahoo Finance. The topic of this panel is will the M&A boom last? And we have an awesome group of experts to hash that out. To my immediate left is Luisa Gomez-Brava, who is the global head corporate and investment banking at BBVA in Spain. To her left is Mohandar Singh Banga, but he goes by Vindi. Please, correct Vindi? That's right. Who is a partner at Clayton Dublier Rice in London? And to his left is Peter Orszag, who is the CEO of Financial Advisory, a Lazard USA based in New York. Welcome. Thank you. So, lots to talk about in terms of the environment for transactions, mergers and acquisitions. Before we do that, I just want to ask the panelists to briefly tell us what they do for a living to explain how their roles are selling into this topic. Great. Well, thank you very much. It's great to be here. I am, as you said, Luisa Gomez-Brava. I'm head of corporate investment banking at BBVA, a member of the management board, and I run global markets, investment banking on finance and transactional banking for our footprint, which is a lot of emerging markets in Latin America and Turkey and Spain as well. Vindi. Vindi Banga, my executive career was with Unilever, where I worked in every part of the world, lived in 18 different homes, and was responsible for the global consumer businesses. For the last 12 years, I've been an operating partner with Clayton Dublier and Rice, which is one of the first three private equity firms set up in the world in 1978. I also chair the U.K. government investments in London, and I'm on a couple of boards. I'm on the board of GSK PLC and the economist. Peter. And I'm Peter Orzak. I run the global advisory business at Lazard. So within that rubric, we have M&A restructuring, sovereign advisory, and capital markets advisory. We are about half, in terms of our managing directors, about half in the U.S. and half ex-U.S. Great. Thank you. And it's interesting that Vindi was talking about the pedigree of Clayton and Dublier and Rice being one of the first private equity firms, and I just sort of recognized that Lazard and BBVA are also firms with a long history from the 19th century, I think, for both of your companies, financial institutions. So I think staying power is certainly important and kind of an important part of the conversation because you have to think long-term in terms of these cycles. So, Louisa, I'll ask you first, why don't I start with you? Will it last? It kind of seems obvious that it won't because, you know, when you have a boom, it's not going to last, but maybe the best way to get to that is to ask you where you see us in the cycle right now. Right. Well, it's a very interesting question, and I think, first of all, I think it's a little bit unfair when you are coming off such an extraordinary year as last year. So comparing anything against last year is always going to look a little bit worse. Last year, M&A volumes doubled the average of the last 10 years. So even this first quarter, we still had, you know, an average volume of deals, which is 25 percent above that 10-year average. It's still down, right? So I think that's a little bit unfair. I think it's complicated because, obviously, there are a lot of headwinds that weren't there before, and we have, obviously, you know, the tightening and the cost of funding issues. We have the growth issues, whether there's going to be growth or not. It's very relevant, obviously, when you're looking at M&A and operational costs. So these financial conditions underpin a huge uncertainty. And, you know, doing deals in M&A, you know, you require a certain set of certainties to develop the cash flows that are required. So that's a little bit challenging. However, I would say that near-term, there are some resilient areas. So not all is gloomy, let's say. I think we will see a slowdown overall in M&A activity, certainly in our case, over the next quarter, specifically, I think, in the second half of the year and possibly going into next year as conditions, financial conditions adapt and the, you know, the acquirers and sellers start understanding the dynamics. But, as I said, near-term, there are some resilient sectors. First of all, I would say, especially, everything that's related to infra is going to perform well. We're seeing still strong appetite. We have not seen any of the deals that we have in the pipeline, you know, stop. And I think that's going to be still there. Anything that's asset investment is, I think, something that's going to be supported even in the next quarters. And I think structurally, as well, there are going to be positive trends. I would say on the supply side, believe it or not, there's still a lot of liquidity going around. So I think corporates have come out of the pandemic in general. I mean, you have obviously sector-by-sector stronger. They still have a lot of cash. I think, you know, financial sponsors still have a lot of cash as well and banks have liquidity. So I think that on the supply side structurally, I think over the next, you know, two to three years, that's still going to be supportive for M&A activity. And then on the demand side, I think there's also going to be support from really transformational issues, you know, and I would just name three, digital, ESG, and a third one, which is new, because these are the two, I think, that are not new, which is everything that's related to the new world order. So obviously, the relocation of supply chains and what is now called the strategic autonomy of countries, that is also going to be shaping future M&A flows going forward. I love that last point. Peter, let me turn to you, and by the way, we'll do some Q&A from the audience later in the session. Let me turn to you. I mean, having said that earlier, Louisa seems pretty sanguine. But isn't rising interest rates just going to kill the joy? Not necessarily. First, rates are up, but they're still not dramatically high, you know, relative to 2016, 2017, 2018, which were years of pretty robust M&A activity. So one doesn't necessarily to the other, the other big thing that has changed is the emergence of private credit, private debt, from very large private equity funds that are willing to put debt financing into deals that are not on. So it's a hedge against the leverage loan market and the high yield market, because there's now a new source of financing for transactions. But could I take this opportunity just to reinforce a couple? So we have, look, there is some pressure on transactions from higher financing costs, just because, you know, in two ways. One is the cost of financing the deal, but also in terms of the discount rate that's applied, which then feeds into equity values and this divergence between, no, my company is actually worth a lot more than the stock market is saying it's worth right now, which can lead to some, you know, at least temporary divergence between the buyer and the seller in terms of what the underlying value is. That having been said, I still think there's a lot of momentum behind M&A. So I just want to kind of pin that down a little bit. One is the preexisting effects of technology, which have been driving a lot of the transactions over the past several years. In one way of thinking about it is, arguably the optimal size of a firm has gotten larger over time. It makes more sense to be bigger in today's world given the benefits of technology, the easier ways in which you can manage a larger organization relative to historical times. And so we, you know, that isn't stopping. The second, which was already mentioned is the energy transition, which is going to be a massive ongoing shock to corporate structures for the next for decades to come, and will involve both selling and buying of assets. So it's another underlying driver. The third is COVID has really shaken up business organization period in fundamental ways. So new business formation is dramatically higher in the United States, also in the UK and France, than it has been historically, mostly because coming out of COVID, people are rethinking how they can do things. And then the final point is also mentioned. I think we're likely to see, and I think that from a US policies perspective, hopefully we will see the emergence of a US European superblock that rearranges the kind of global order and has sorry, significant implications for M&A transactions also. And by that, I mean much tighter integration between the United States and Europe, opening up a lot of room for European investments into the US and US investments into Europe. Yeah, that's really picking up off of your point that Louisa and that's an interesting point here to a Davos where it's sort of the the intersection of the public sector and the private sector. So that's that's what this would sort of engender or would be well, we're responding to it in a way, I guess, essentially, it's an opportunity there, right? Yeah, can I mention one other really quick point? Yeah, sorry, the other negative just to get it on the table is the regulatory environment. So let's just, you know, put that on the table because CIFIAS, the various different national security regimes, which then kind of feeds back into this superblock idea. And then also the antitrust environment. I think what is likely to happen at least in the United States is many of these deals that the Department of Justice and the FTC have been challenging are going to go to court. And the authorities may well lose a significant number of the cases that are going to wind up in court. And that can play out over the next couple of years. So even the regulatory environment may evolve, not only because the midterm elections in the US may shift things, but also because the courts say, I'm sorry, the law hasn't changed, you're interpreting the law in a different way. Right. And we're a little bit nervous about that. That gets back to a regulator, Lena Khan in the United States and Tim Wu, who's in the administration as well. And they have a very different perspective than that than history, at least recent history. So Vin, sorry, getting to you, your business, that's all you guys do. Are these kinds of deals? Does that have give you a different perspective on the marketplace right now? You also said you were going to decide after hearing from these guys. So that's why I decided to have you all ask. That's absolutely fine. Well, first of all, I would say I'm not going to try and guess whether there's going to be more or less MNA. But what I would say is I think there's going to be a fair amount. And I'm not ducking the question, but there will be a lots of it. Now, why do I say that? I think that first of all, there is uncertainty right now, as everyone's pointed out. So things have slowed down a bit. But there's some pretty big changes that corporations need to factor into their business strategy, and they don't have time to respond. This week and earlier, there's been a lot of discussion on de-globalization, globalization, all of that. And that's going to impact the way in which people think about their portfolios, supply chains, et cetera. If I add to the data points that you've already heard, so I saw a study that said that 70% of 400 leading CEOs feel that they're going to do divestitures within the next 12 months. That's going to mean MNA. There was pretty stable leadership for companies through COVID, not much change. Right now in the S&P 500, there's a CEO change every four days. And what happens when you get a new CEO, you evaluate the strategy, you evaluate the portfolio, that's going to lead to change in MNA. The last quarter has seen the highest amount of shareholder activism around the world. The number of campaigns launch has been the highest ever. That's going to lead to portfolio change. So I think with all of this, there's going to be a continued impetus for people to reshape their strategy, their portfolio, and hence MNA. Last but definitely not least, public to private. There are lots of companies in every part of the world which are rethinking, whether they want to be in the public markets or in the private markets. And that also could sometimes involve change of portfolio. Yeah, those are some great points. Luisa, I want to actually ask you to maybe expand a little bit on that point about the change in the political order impacting the MNA business that Peter also touched on. And maybe, you know, the one issue is the Europeans, the Americans getting along, right? Because I understand what you're saying, Peter, but there has been some fracturing on the other hand over the past several years. So is it possible that you can do, will that inhibit or hinder deals going back and forth across the Atlantic, I guess? Well, I think it's a good point. The thing is that a lot of European companies were already looking at the states for investment. You know, there's a concept of flight to quality, obviously, in certain times, and that has been the case, you know, since the pandemic. And since also in some emerging markets, there's political risk that has been increasing even before the war, right? So obviously now post, when the war, you know, post war, there's this concept of French shoring, right? So you're going to want to have not only supply chains that are secure, not just, you know, supply chains that you can, you know, geographically, you know, from a transportation point of view, you ensure that are going to get there, but also that are placed in geographies that share the same values, right? And we've already seen an uptick of this, for example, when we're looking at deals in Mexico, right? You know, obviously, you know, the Chinese, you know, situation also started, you know, a few years ago with Trump meant that a lot of that capacity was already being replaced into, into Mexico. The signing of the agreement, the trade agreements has also ensured that that's going to be a healthy, ongoing interest. And we're seeing even Asian companies that have those supply chains in Asia, into the US, setting up shop in Mexico to be able to retain the business, right? So there is, there is a lot of that that's going to be going on. And I do believe that that concept of flight to quality on one hand and the French showing on the other is going to be, you know, structurally relevant for ongoing business. Right. Can I come in on this? Look, I think this is one of the biggest tectonic. I mean, there are others, including the energy transition and technology, but this is a big new tectonic plate shift under the global economy and under corporate activity. So just for a second, it is, and this is laid out in a foreign affairs piece that Bill McRaven and Teddy Benzel and I wrote. But there are more trade disputes between the United States and Europe than there are between the United States and China. Just think about that for a second. So there is a lot that can be done to reinforce this kind of rules based block, if you will. This is the moment in which it has to happen. If it doesn't happen over the next few months, it's probably not going to happen. And there are lots of things you can do, some of which is already happening. So the Transatlantic Trade Council, Technology Council, is a good sign. You could expand the safe harbor under SIFIUS in the United States beyond just the UK and other limited number of countries that get a safe harbor. There's no reason that shouldn't include France, Germany, Italy, other key allies. There's a lot that could be done to kind of really reinforce the underpinnings of US, Europe or Europe US that would then give more confidence and kind of accentuate the underlying trend because I agree there were a lot of European countries looking at the US anyway. You could kind of put some more wind in that sail. And Viddy jumping off of that maybe, part of fracturing around the world was Brexit, which is something we almost forget given everything that's going on now. But has that impacted your business? So we thought it would impact the business a lot, but I think as we look forward, we haven't yet felt that impact in a direct sense. And maybe it'll, it'll happen over time. What we're seeing right now actually coming back to the main theme here is we're seeing an enormous uptick in activity for private equity actually. And that's because on the demand side, as we were all alluding to earlier, there's just so much traction and private equity plays such an important role in transition as a transition capital. And this is, you know, when when people are thinking about changing their portfolios, changing their strategies, even if it is actually changing their global balance between Europe and America, this is going to lead to the need for transition capital. And private equity brings all of that. The reason I'm smiling is because I realized I should have made a disclosure at this point that my company is owned by private equity. So would say a lot of people in the world these days follow a question, strategic buyers versus financial buyers. So you were the original the OG of private equity. So you sort of had the whole financial buyers laying to yourself. Now it's gotten very, very crowded. Has that pushed up prices just sort of cyclically in a way that's unsustainable? So look, there's been a lot of price upward movement in the last three or four years. And we've all seen that the excess liquidity has actually changed the multiples at which transactions have happened. Now, from our own firm's perspective, we have always tried to shy away from the classic auction process, which drives these up and actually look for opportunity, which is at a more, let's say, affordable price, which you got to look for it. And there is still those opportunities do exist. And they typically exist coming back to the theme of trans transition, where the transition is complicated, where it's complex, either it's a big complex carve out, or you are trying to put two businesses together, or you are trying to partner with somebody, actually. So wherever there is complexity, I think there tends to be an opportunity to actually be be investing at the right price. And I think on that topic, if I may jump in, what we're seeing with our corporate clients is the, you know, and this has been increasing in the past. I would say a couple of years to three years, a need to couple and partner with, you know, with financial sponsors. And this has been the case because when you look at the transformational capital that they require to some digitization and the energy transition, it's huge. They can't, they don't have enough capital to do this alone by themselves. And they are coming out of the pandemic very clearly realized that they really need to, you know, to do a lot of transformational deals. And this is obviously going to be organic growth, but there's going to be a lot of inorganic growth on the table. And for that, the partnerships, you know, between the corporate world and the institutional money is very relevant, not even to say on the more heavy asset side, when you look at, you know, long term money, you know, pension fund money, sovereign wealth fund money, insurance money, that is really supportive of long term dated assets that have cash yields, low risk, stable, predictable cash flows, and that they're willing to assume, you know, perhaps a little bit lower returns, but to ensure that they have that longer, you know, longer yields available. So I think that that is also that partnership concept, I think is going to be really critical for the transformational events that are going to be taking place. Could I just add to that? I think that in addition to the need for capital for corporates, I think the other thing that they find beneficial when they work with sponsors like ourselves or others, is that they add to their operational bandwidth, because along with this capital, very often comes operational capability and these transitions are complicated and they require a lot of change, change management and experience. And I think that comes along with the capital. I think the other thing going back to the whole question of energy and ESG, I think that is going to be the source of a fair amount of disinvestment by corporates and disengagement. And again, you know, this is a place where I believe private equity can play a really important role, but for the right reasons, there is a lot that is talked about about saying, hey, you can, you know, private equity comes in because you can actually hide these assets. But I think that's not the point. The real point is that moving from black to green is going to be very long, complex and a big transition. And that is where I think private equity can play a really important role in helping the transition process. That'll be fascinating to see that unfold, either that or Berkshire Hathaway. Take your pick. You can get Warren Buffett to buy your oil and gas company. Do we have any questions from the audience? We've got a couple of this person in the front row raise their hand first so they get to go first. Hi. I suppose this is mainly a question directed to Mr. Banger. But looking at the UK market, we perhaps had a couple of years of particularly high activity since the pandemic hit. A lot of people attributed that to the fact that the UK was hit particularly hard by the pandemic and that there was undervaluations. Do you think that's beginning to change at all yet? I mean, obviously you say activity is going to be driven by the transition process. But do you think that the valuations are starting to normalize? And also, are you starting to see any effects on your business from the UK? Is the National Security Investment Act to give it its full name? So look, I think that first of all in terms of the capital markets in the UK, what you have seen is that the drop in the footsie has been less than the other capital markets. Now that may be because it was already perhaps a bit lower than the others. But that's certainly one point. I think the second thing is that in the UK, I do still feel that there are a number of assets on the capital markets which don't really have what I would call their intrinsic value. And that's for a whole set of different reasons that one can spend a lot of time on. One of them certainly is the structure of the capital markets. And I forgive you one example. Just think of pension funds. So the average pension fund sized in the UK and there are 5,700 of them is 300 million pounds. One pension fund, Canadian pension fund is probably 550 billion. So there's just a whole plethora of very small pension funds and so on underpinning the UK stock markets. Now that's not the only reason, but I think that's one of the reasons why a lot of the assets in the UK tend to be driven far more by dividend. They less focus on growth, they less value growth and so on and so forth. So I think there's still a pretty fair amount of asset change that will happen in the UK capital markets. Fascinating. I didn't know that about pension funds in the UK. Another question. So my question is about value creation going forward. And I first I want to understand if you see any difference from the last 20, 30 years in terms of drivers and the value creation and if so, how this would be done in an environment where the regulatory environment, tax environment is changing, inflation is putting a lot of pressure on operating leverage and the cost of capital is increasing and hence the financial leverage is also being impacted. So where value would be created going forward if it is different from the past? Peter, do you want to take? Well, one of the reason or one of the drivers there is the first factor that I mentioned, which is the role of technology. So if it's true, this is a debatable point, but if it's true that the span of control is easier today with technology than it was 20 years ago and there are increasing returns to scale in data assets and other dimensions of technology, there is a benefit to value creation that just comes through those channels. So I mean, we're clearly seeing changes in the way that some of the benefits, potential benefits and costs are described in part because we've seen a movement towards a stakeholder perspective and not just a shareholder perspective. But I would identify that factor as being relatively more important today than it was 20 or 30 years ago as you mentioned. Anyone have a point that want to answer that? I think it's going to be created the old fashioned way which is through operational enhancement. I don't think that you can rely on multiples and so on as we've been discussing earlier, quite the opposite actually. The multiples are probably going to go the other way for a while and therefore value will be created the old fashioned operational way. To pick up the point on technology, it's really interesting if you think about it, 10, 15 years ago technology crept into companies starting in the supply chain. Now it's all pervasive. It's in every aspect of a company's operation. You can see the cost and productivity benefits but you can see actually adding to customer acquisition and growth. So I think that value creation will be created from operational enhancement, leveraging technology very much so. Really quick point on this which is another way of coming back to the geopolitical and the sort of tectonic plate. I agree with all that is a lot of activity over the past 20 to 30 years went to where labor was cheapest. Going forward as someone put it to me in a meeting this morning, I agree with this, it may well go to where energy is cheapest and that is a fundamentally different geography. I think we have time for one more question. Do you have a point? No, I was just going to mention very quickly, sorry that I think that it is also very important that the technology aspect also for talent retention. So I think this is also an issue that is very relevant and a lot of companies are thinking about how to retain talent and grow because at the end of the day you need that talent based and technology also drives that forward. And to your point, I think it's most, well I want to say most, well actually yes, most of the value that has been derived from the deals in the past couple of years has been multiple expansion. And that's not going to be the case anymore. There's going to be a flattening of evaluations there and you have to go the old way. OK, that part of the boom's over. Maybe. All right, last question here. Yeah, one of you said activism was the highest it's been in the last quarter. What do you think is driving that? Are there particular types of activists? Are there the volume of activist funds rising? Is the... So I can answer really quickly on that. Lizard puts out an activist report. So a lot of activity, actually one pocket of kind of upswing there is in Europe, especially in France for the beginning of this year. Another theme I would highlight is the blurring of the lines between kind of traditional activists, some of whom are trying to pretend they're not activists anymore and long only equity owners who are getting activists like. And so the lines of what is activism are kind of getting a little blurred. Anyone have another point about activists? That's good. It's coincidental or not with the rise of tribalism. One could argue in the world as well, right? I mean, it's... Well, I mean, most of the owners are, you know, they're passive investors. Right. And most of these guys are, you know, long forever, you know. And the only way that they can, you know, increase the valuation of their companies that they own is by being more active, you know. I think the activism comes in when corporations are slow to move, generally. Yeah. And that is it. Right. And they're looking for... As the rate of change increases, there's a lot of change outside. Right. Yeah. And the question is, are corporations moving fast enough? That is often the source. All right. We're going to have to wrap things up with that. I think we've come to the conclusion that from these guys' perspective, the boom is not necessarily over, although, well, OK, that's their take on it. And some interesting things in terms of how the M&A business is going to sort of leverage all the change that we're seeing around the world in terms of sustainability and energy, the new political wins that have shifted. We didn't even really get into China. We just touched on that. So interesting in terms of a lot of different opportunities, and I think it's going to be very vibrant and dynamic business going forward. So with that, please join me in thanking these panelists. Thank you. Thank you, guys. Lisa, Indy, and Peter. Thank you, guys, very much. Thank you. Thank you. Thanks.