While bull markets and easy financing are critical for strong M&A, another important factor is government action. For example, the Telecommunications Reform Act of 1996 led to a surge in M&A activity, as the government allowed competition in local and long-distance communications.
This is why President Obama's recent statement on finance reform is so important, especially to the private equity and hedge fund sectors. He declared: "No bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund." Symbolically, Obama gave his speech during Goldman Sachs' (GS) earnings call, where the company reported profits of $4.79 billion. The main growth driver was from its trading and principal investment activities (which amounted to $6.41 billion in revenues). It's these kinds of activities that Obama considers too risky for federally-supported financial institutions.
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Author: TOM TAULLI