Corporate dealmaking, mixed retail earnings: Asking for a Trend

On today's edition of Asking for a Trend, Yahoo Finance's Julie Hyman breaks down the trading day's biggest stories.

A new EY forecast predicts corporate M&A activity will increase 20% in 2024, while private equity deals will rise 16% despite high interest rates. EY Strategy and Transactions, Americas Vice Chair Mitch Berlin breaks down why corporate dealmaking is experiencing a comeback, highlighting the "need to transact to transform" in order to stay ahead of the competition. He also notes that given how differently the two candidates view M&A, the 2024 presidential election could factor into some deal decisions.

As the election lies just five months ahead, Verde Clean Fuels CEO Ernie Miller explains how Donald Trump and Joe Biden's competing energy agendas won't really affect the company: "There are benefits with what we do for oil and gas producers beyond the energy transition and so a change in administration is not really going to change this for us."

Finally, Julie Hyman breaks down some of the biggest names moving in after-hours trading, from Five Below (FIVE) sinking to Victoria's Secret (VSCO) climbing on their respective earnings.

This post was written by Melanie Riehl

影片文字紀錄

Hello and welcome to asking for a trend.

I'm Julie Hyman and for Josh left in and for the next half hour will be breaking down the trends of today that move stocks tomorrow.

There's a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve here.

Some of the trends we're watching another day and another data dump A P payroll growth slows to a four month low in May, but we're not done yet.

Jobless claims tomorrow.

And the Friday jobs report will round up a reading of the labor market ahead of the feds, June meeting.

Plus, what's the deal with deal making a new study from EY signaling?

The M and A market could be in for a rebound in the second half of 2024.

Already.

This week, we've seen a slow of announcements.

We'll take a closer look at what is fueling activity and big business in Texas.

The lone Star state has become a hotbed for corporate relocations across tech energy and construction.

There's even a Texas Stock exchange on the docket, we'll discuss what's driving the migration later on this hour.

A recent survey from EY reporting that us corporate M and A deal volume will increase by 20% from this year to next.

And the outlook is, it's only going up from there.

We'll have the author, we have the author of that survey.

Joining us now, Mitch Berlin Strategy and Transactions Leader at Ey.

Mitch.

It's good to see you.

Thanks for being here.

Hi, Julie.

Thanks for having me.

So I feel like the conventional wisdom for a while was the rates would really have to start to move down more meaningfully before we saw an uptick.

Well, in a lot of stuff, right, in housing activity, but certainly M and A was on that list.

So is that what we need to unlock things or are people sort of chomping at the bit to get deals done anyway here?

Well, it's a little bit of both Julie.

We need, we do need the rates to come down a bit.

You know, when we started the year, we thought that we'd have about six different decreases in the fed borrowing rate.

Now we're expecting about two, but that's offset by the overall confidence in the market.

Corporate profits are high.

We have CEO confidence at an all time high.

99% of the CEO S we surveyed in a recent interview uh in a recent survey said that they plan on doing a deal at some point on fiscal 24.

And we're looking at GDP growth about 2.5% which is a little higher than initially predicted.

So we are expecting the market to come back despite that, despite the fact that we probably won't get, we know we won't get six cuts in interest rate, maybe more.

About two.

Mitch, what are some of the motivations that you're hearing from in terms of why, uh, companies are going after deals?

Well, part of it is that, you know, a lot of these corporations have been, let's talk about corporate, then we'll talk about pe corporate has been sitting on the sidelines for about the last year and a half.

But they need to transact to transform, to try to transform through organic means just takes too long.

The pace of transformation is too fast.

So they really do need to do some sort of M and A to be able to continue to stay pace and or stay ahead of their overall competition.

They're looking to gain market share.

So you see a lot of deals where they're hiring competitors to gain market share, they're looking for product expansion.

So particularly if you look at life sciences, they have M and A patents that are coming to exploration, they need to increase their or I'm sorry, they have um they have patents that are expiring.

So they actually need to build our R and D pipeline.

And so they're looking to increase that through M and A, you have capacity expansion.

If you look at the oil and gas industry and the, and the consolidation around the basin.

And then tech is the largest, the largest sector that's doing transactions a year over year and this year is no exception.

And that has a lot to do with all the emerging A I technology that companies are trying to acquire as, as well as cyber, cyber technology to protect the data that they need to actually drive the A I that they're acquiring.

Mitch, I want to dig more into some of the sectors in a minute.

But first, I, I also want to dig into the timing.

You know, we talked about when rates might be coming down and what effect that could have.

But the election also, I imagine is something of a factor.

Are we seeing sort of a rush of desire to get deals done at least announced if not closed before the presidential election?

Well, if you look at history in the last two elections, M and A started high the in the first quarter of the election and then it sort of tapers off towards the end of the year.

It's hard to determine whether that has to do with the election or just the normal M and A cycles where it's a little bit slower in the fourth quarter of the year.

This year may be different because because there are clearly different attitudes and M and A between the different parties.

And so you have a party right now with the DOJ and FTC, that's putting a lot of scrutiny on deals if that party is out of office and the, and, and the Republican party comes in, there is potential for less scrutiny from the DOJ and FTC.

What falsely think is that the, the interest rates are um will be impacted by the election.

But the fed is really independent of whatever governing party is in.

So the, the fed will not increase or reduce or hold rates flat depending on the party, they're independent.

But I do think there are some emotional reactions around that that are actually imagine that Mitch.

Um but at the same time as you referred to, right, this DOJ has been pretty active.

Is that something that um clients that folks you're talking to are taking into account, whether they even decide whether they pursue a deal in the first place.

In other words, has that put a damper on things over the past couple of years.

Well, we, we certainly talk about it with their clients truly, but what they're doing, it's not, it's not scaring them away from doing deals, but I think they're more cautious in how they're doing deals.

And so what we're working with them on is look at the current structure of this deal doesn't work because it's gonna be perceived as you dominating a certain product category or a certain geography.

How can we restructure that deal?

So you still get that return on investment, but maybe it's a little bit of a different structure that will satisfy the doj and FTC guidelines.

So it's not discouraging them.

It's just there.

We're, we're working with our clients to create more scenarios than we have in the past.

Um And last, I, I do want to dig more into energy in particular because there, the deal activity has just been a lot, right, because it's not just the number of deals, it's the size of the deals that we have seen of the ones that have been announced.

Um, I believe only one of the large ones has closed in the form of Exxon.

Um, and, uh, pioneer, there's still a lot are a lot that are pending.

Um, do you think that we've kind of come to the end of that flurry of activity in that industry we have now come to the end?

I think there's still a lot of big deals in the pipeline.

I think we'll continue to see what we're gonna continue to see more.

These, particularly in oil and gas, oil and gas balance sheets are flush with cash.

Um, so it's, it's a lot easier than to do deals because they don't have to go to, uh, the, the syndicated market to actually finance these deals through debt.

As a matter of fact, if you look at the last 20 if you look at the largest 20 deals in 2024 only three of them.

This is across all industries.

Many of those deals that oil and gas, only three of those deals actually went to the debt markets to fund those deals.

The rest were funded through cash or stock Mitch.

Thanks so much for your perspective.

Really interesting stuff and obviously we'll keep in touch as the year goes on.

Thanks, Julie.

You've heard of the NYC and the NASDAQ.

How about the Texas Stock Exchange, Wall Street Heavyweights are backing a plan to launch a new exchange in the Lone Star State will have more.

Coming up on Texas migration on asking for one state has been catching the eye of several corporate corporations.

Texas become a hot spot for businesses to relocate.

It really has in the past few years here.

And so if you look at this from 2018 to 2023 according to CBRE, they look nationwide at the number at the cities and the number of corporate headquarters that they were attracting.

Austin was number one here, we know how popular that's gotten.

It saw a huge boom in real estate that now is seeing a little bit of fallout Dallas as well in Houston.

So the top three cities cities in Texas, then you see Nashville and Denville, this Denver, this doesn't necessarily mean that there has been a population that's followed these headquarters in some cases, it's just sort of certain executives that are based there in Texas and the rest of the workforce might remain elsewhere.

But nonetheless, it definitely has been a trend here.

The latest news is that there is a Texas Stock exchange that's in the works that's getting some big backers from the likes of Black rock and Citadel.

So that's just sort of the latest headline grabber uh of what's happening in Texas.

But we wanted to talk more broadly about this Texas mi migration trend.

Let's at Yahoo Finance's senior columnist, Rick Newman.

And on this, Rick, we thought of you because uh you know, there is sort of a politics overlay to all of this as well.

Texas doesn't have income tax, right?

It has a certain political tilt in recent years.

Although they say Austin is a bit of an island in that regard.

So it's been interesting to see this kind of corporate move, right?

Uh I'm not sure it's that surprising though Julie.

Uh so uh Governor Greg Abbott in Texas, he's similar to Governor Ron desantis in Florida.

They characterize their states as places where woke goes to die.

Um Don't bring your woke policies down here.

We're all about business.

Uh Let's keep things traditional.

So, um you know, for when we're talking about a new stock exchange, uh I'll quiz the audience here uh and ask me how many stock exchanges do you think there are in the United States?

People might say, well, I've heard of the New York Stock Exchange nyse, I've heard of the NASDAQ.

So two and in fact, there are 13 stock indexes in the United States.

There's one in Boston, there's one in Chicago, uh there's others in different cities.

And uh I think most of those kind of harken back to a time when those cities in those areas were more of more like industrial centers, which they're not so much anymore.

So Texas obviously is a business haven.

Um Obviously the US energy uh industry is, is basically um lodged in Texas in both where the energy comes from in the Permian Basin and all the energy companies headquartered in Houston, for example.

So I guess this makes sense, but it, it doesn't mean that um big companies are just gonna automatically jump from the NYSC or from the NASDAQ over to some, some less woke um exchange.

That's ba that's based in Texas.

I mean, that has to be a really good reason.

Uh financial reasons, I mean, companies have to uh protect their fiduciary responsibility to shareholders.

There has to be a good financial reason to change exchanges.

I looked this up today.

This is not something I really knew about, but NASDAQ has actually managed to lure a few companies from the NYSE and they do that, that by saying things like um you're gonna have your stock will have less volatility on our exchange, technical matters involving the close of trading and the auctions at the beginning at the end of the day.

And when the companies think.

Well, we think, yeah, that'll be good for our shareholders.

They might make the jump.

It doesn't happen very often.

Maybe a Texas exchange would be able to get some IP OS, um, in the energy market in Texas or in other parts of the market down there.

Um, but, uh, you know, this could be, uh, this isn't a bad thing and it could be beneficial down the road.

Well, it's interesting, you know, I, I thought it was a bit surprising to see the reports that Blackrock was one of the companies that was backing this, considering, uh, they've come under fire from certain pension funds, for example, in Texas who see them as their, and their ESG agenda of the past as being somewhat quote unquote woke.

Right.

And yet here they are reportedly backing this exchange.

I, I don't, I would guess that, that, that this idea that this is somehow about ESG and DE I and all these multi, multi letter abbreviations, um, that this is a bit of a red herring because, um, I, I think if any company were to actually choose an exchange based on something like, uh, we just want to be with the ant where the anti woke people are.

I, I think you're, I, I would guess you're opening yourself up to shareholder lawsuits if there's any claim they could make that, um, there's that it's financially disadvantageous to be on some upstart exchange.

I mean, you know, the NY IC and the NASDAQ would tell you, look, we have the deepest markets, we have the most in institutional investors on our platforms.

We are the place you want to be uh to serve your shareholders.

And I, I just don't think ac eo can say, yeah, but we want the anti Woke Exchange II, I can, I can see that not being that popular.

So uh if this does get off the ground, I think, I think that they would have to make a case um on financial grounds that this would be good for, you know, maybe it'll be, you know, the NASDAQ, for example, focus on tech companies, right?

Even though it's grown beyond tech companies.

Um so maybe uh a Texas exchange focus on energy companies.

I mean, remember like when Facebook went public, there was a huge battle over which exchange would get the IP O so maybe we have some big energy um IP OS in the future and maybe one of them says we'll give it a shot with the Texas exchange because we think that they're in our neighborhood and they have what we need.

So maybe that's where this is going.

Maybe so we shall see Rick.

Thanks so much for covering it for us.

Appreciate it.

Well, believe it or not as of today, we are exactly five months from a presidential election.

It's coming on Tuesday, November 5th.

Voters will be faced with a choice giving President Joe Biden four more years to continue the country's transition to clean energy or to bring back Donald Trump's more pro big oil policies.

Joining us now with a look at the energy landscape is Ernie Miller Verde Clean Fuels CEO.

Thanks for being here, Ernie, thank you.

Good to be here.

So you guys um work on developing sort of alternatives to gasoline specifically and other types of fuels.

Um And so I wanted to get your perspective a lot.

Maybe I'll ask you in a little bit if you would think about listing on a Texas Stock exchange because you guys are based in Texas, right?

But we'll get to that later because I, I am curious your perspective on leading to this election where kind of we are in this energy transition and how pivotal the election is gonna be for that Julie Verde Clean Fuel focuses on, on we make gasoline and uh and we make gasoline from natural gas that's either uh flared or otherwise disadvantaged, either physically or economically stranded.

Um And, and, and so we're, we're helping producers solve a AAA problem with associated natural gas that allows them to, to produce their oil more, more efficiently.

And, you know, uh uh the upcoming election is, is, is interesting as it comes, but I don't see that, that there's gonna be a lot of change, um regulatory wise, it's gonna affect our, our business.

We, this is a, this is a long term play, there's, uh there are benefits with what we do for oil and gas producers beyond uh beyond energy transition.

And, um, and, and so, uh uh a change in administration is, is not really gonna change this for, do you guys get any kind of incentives as associated with our IRA or else wise with what you do when, when we use natural gas as a feedstock like we're doing in the Permian Basin with Diamondback energy.

We do not.

So we, we compete heads up with traditional refining and um and, and we provide producers like Diamondback a a an an alternative pathway to monetize natural gas, which in the Permian Basin is, is often no zero or even negative value.

Um How does it get straight?

It, it it's a by product of what them getting oil out of the right?

It's associated natural gas.

So, so in many basins throughout the, throughout the world, oil production is accompanied by a certain out of natural gas.

And when the infrastructure is either not there to get that gas to market or is constrained so that not all of it can get to market, you are naturally constraining your oil production and the oil is going to drive the economics on these developments.

And so the inability to move natural gas becomes a real problem for oil producers.

And it's also to go back to energy transition.

Most of these companies are trying to not flare natural gas because it is not great for, um, climate change, et cetera.

And also they're incentivized to not, to, to figure out something else to do with that.

Um, so how much are you guys producing through this method?

And, and sort of like if I'm driving a car around the country, what's the likelihood that I'm, I'm using gasoline that's been produced in this?

Well, the, our, the, the, the Permian Basin plant that we're doing with Diamondback is our, is our first commercial facility.

And so the what we will do there is take approximately 34 million cubic feet of natural gas and produce in round numbers about 3000 barrels of gasoline a day.

And uh you know, there, there, we see opportunities, we see multiple opportunities in the Permian Basin, but uh we, we see great opportunities for us in other producing basins here in the US and, and then uh stranded or associated natural gas globally is a, is a real problem that we can, we can address.

Got you.

And so what's the sort of growth plan for you guys?

Well, uh like I say, we've, we've got multiple opportunities in the, in the Permian basin and then, and then several opportunities uh across the US.

To me, what we do in the Permian Basin.

On this first on this first plant is really can be looked at as for as a case study for what can be done globally.

If you know, if you think about the, the African continent, for example, there are billions of cubic feet of gas that are flared every year in uh in, in, in Africa and usually in places that have no refined, no refining capacity.

So they're flaring natural gas on the one hand, and they're importing refined products at huge premium.

On the, on the other hand, when that natural gas could be a resource that could, that could give them a, you know, a, a fair bit of their refined product need.

All right, now, I'm gonna throw you the curveball that I alluded to because we just heard Rick talking about this Texas Stock exchange and is raising money.

Yeah, I mean, would you guys, I mean, what would be the I I, I'm just trying to get some insight into why people would want to list on various exchanges.

Would a local exchange hold some allure?

You know, it's, that's an interesting question.

We're, we are, we, we're traded on NASDAQ and uh very happily traded on NASDAQ.

But a Texas exchange is, is, is an interesting thought.

I've, I've, it's, it's not a mystery to me why so many companies are relocating to Texas.

Texas is a great business environment.

You, you alluded to the income tax and, and, and uh and is very, very pro business and, and will help you grow.

So we Texas is more than welcoming into business.

But the idea of a Texas exchange is uh is, is interesting.

I'm, I'm interested to learn more.

Well, we'll check back in with you once you do and once it gets up and running.

Thanks, Ernie.

Thanks for being here.

I appreciate it.

Good to be here.

Thank you.

Well, coming up a look at some of the stocks moving after hours on asking for a trend.