Legal Week offers light-hearted inspiration for the gloomy deal lawyer as summer arrives

For a market in a deal slump there seem to be a lot of deals happening at the moment. Recent weeks have sizeable bids for companies as varied as International Power, Ontex, Chloride, SSL and the UK assets of EDF, not to mention the merger between PartyGaming and bwin Interactive Entertainment last week. For seasoned deal professionals the question must be whether the cycle is finally beginning to turn after a two-year slump.

Well, in a light-hearted summer mood, we've decided in this column to hunt out what reasons there are to be cheerful. While not hugely bountiful, the good news is that there are more of them than the current tales of woe would have you believe.

  • Economic commentators have been consistently wrong. Public finances, unemployment, house prices, economic growth, gilts, sterling – pick your poison. On a range of indicators for the UK economy it is actually hard to find a consensus view from economic pundits aside from the utterly obvious that it has turned out as accurately gloomy as predicted.

As some seasoned market-watchers have noted, for months we have been locked in a narrative of doom in which when bad news emerges – of which there is no shortage – it is seized upon. Good news that doesn't fit the picture is either downplayed or ignored.

This was most amusingly evident when second quarter gross domestic product figures for the UK emerged last month, which hugely outstripped all predictions. Rather than citing some upbeat news, economists managed to largely brush over the numbers and promise worse to come. Yet for all the gnashing of teeth, the fact that sterling has hit a five-month high suggests some in the market are grudgingly starting to bet on a UK recovery.

  • Bank stress tests could have been worse. While only a fool would pretend that the dark clouds hanging over Europe's public finances show any sign of abating soon, the publication of the stress tests last month from 91 European banks appears to have had a positive effect. As with a similar US exercise, the process was widely criticised by analysts for being too lenient, but on the plus side it has injected more transparency into the market. And that goes a fair way, as displayed by a calmer mood in the markets this week.
  • Companies have cash. Having been pressured by shareholders for a run of ill-fated corporate deals and tech-related overinvestment in the late 1990s, many corporates avoided the debt binge indulged in by consumers on Western economies during the credit boom. And while revenue growth has remained subdued, earnings season has shown profits to be in pretty robust state. In short, many companies have cash and, sooner or later, those deals put on hold will have to be dusted off.
  • Private equity has to get back in the game. Having spent most of 2008 and 2009 wrestling with debt-laden portfolio companies, private equity houses are under increasing pressure to do deals – either to use committed funds or to start getting some returns on existing investments. The considerable upturn in private equity activity this year shows every sign of continuing, even if market conditions are a good way off ideal.

There you have it. All in all there are still plenty of risks in the global economy and it looks like we're set for a grinding slog of a recovery. Or at least that appears the most likely course, until you hear another chorus of analysts citing the end of the world. Having been wrong on just about everything so far, perhaps robust recovery is just around the corner.

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