Upside to Credit Suisse on Improving M&A Outlook

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Credit Suisse ( CS ) provides advisory services and financial products to companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland. It competes with UBS ( UBS ), JP Morgan ( JPM ), Morgan Stanley ( MS ) and Goldman Sachs ( GS ).

Our price estimate for Credit Suisse stands at $47.46 , slightly ahead of market price. We estimate that the M&A advisory division accounts for around 2% of Credit Suisse's stock value.

Sharp Rise in M&A Activity During 2010


Investment banking activity, which witnessed a steep drop during the recent economic downturn, has been picking up in 2010. Thomson Reuters, in its annual league tables for M&A, equity capital markets, and debt capital markets, states that the value of global M&A activity increased to $2.4 trillion in 2010, nearly a 23% increase from 2009.

M&A advisory fees from completed transactions increased 27%. The increase in M&A activity in 2010 has largely been driven by growing demand from emerging markets, where investment banking activity increased around 76% from 2009 and accounted for around 33% of total M&A value.

Going forward, the outlook for M&A activity remains bullish. A recent poll of senior executives by Thomson Reuters suggestes that global M&A could reach $3 trillion in 2011.

We estimate that M&A deal volume will recover after a considerable dip in 2008 due to a decline in global M&A activity (from $3.7 trillion in 2007 to around $2.0 trillion in 2009). As capital markets begin to normalize to pre-recession levels, we anticipate that M&A activity could recover to 2007 levels by 2015.

Credit Suisse's M&A Market Share Outlook

Credit Suisse's M&A market share increased from 13.5% in 2005 to 19% in 2008, as the firm capitalized on strong economic growth that caused increasing demand for global M&A services. However, the firm's M&A market share fell to 14.5% in 2009 alongside declining M&A demand amid the global economic slowdown.

Going forward, we expect this trend to continue, with Credit Suisse's M&A market share hitting 13% by the end of our forecast period as increasing competition from the regional players in emerging markets takes its toll.

However, Credit Suisse has made a recent surge in the M&A space. In the first half of 2010, Credit Suisse moved up to second place in the global M&A rankings released by Thomson Reuters, behind Goldman Sachs. This can largely be attributed to its maintaining stability during the economic downturn, as well as scaling up its operations in emerging markets.

If these trends continue, there could be upside to our current market share forecasts. As our price estimate currently stands slightly ahead of market price, further upside to key valuation metrics could create a buying opportunity for investors.

Drag the trend line in the modifiable chart below to see the impact of various M&A market share scenarios on Credit Suisse's stock value.

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See our full valuation analysis for Credit Suisse here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CS , GS , JPM , MS , UBS

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