The 96 Hour Work Week Revisited
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What a difference six months makes. In the two quarters since narrowly
avoiding a financial collapse, the S&P 500 is up 60%, while corporate debt
and equity issuance volumes are on record setting paces globally. While
M&A remains relatively depressed by historical standards, announced
activity has started to pick up. Global Equity Strategist Andrew Garthwaite
believes that M&A is poised to rebound. He notes that the gap between free
cash flow and corporate bond yields is at historical highs and that indicators
of corporate optimism have increased sharply. (Both are key drivers of M&A
activity).
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With activity levels accelerating, many investors are looking to frame the
prospects for future capital raising and M&A activity. This report provides our
analysts’ bottom-up views on the capital markets outlook across sectors
over the next one to three years, including company-specific implications.
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Our starting point in evaluating corporate financing needs is a proprietary
model from our Accounting Team. It tracks the total contractual obligations
(i.e. debt, leases, purchase obligations, pensions, retiree healthcare,
deposits, derivatives, etc.) and commitments (i.e. undrawn bank lines, letters
of credit, guarantees, etc.) for all S&P 500 companies. We believe it is a
better gauge of short- and long-term liquidity and capital resource needs
than simply looking at traditional debt measures. The model is available to
Credit Suisse clients upon request.
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Using this methodology, our analysts take a broad look at capital needs in
their sectors. We frame the potential capital raising activity across sectors
and industries using our heat map methodology (page 2). On pages 3-8, we
outline companies that are likely to need capital and potential M&A
candidates. We found some of the greatest capital raising prospects in the
Banking, Retailing, Homebuilding, and Utilities industries, while the
Technology and Consumer sectors appear to have some of the best M&A
potential.