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Two $10Bn Deals in a Day - Peak Inflation ?

In the last twenty-four hours, there have been two $10Bn deals announced and both of the deals are in the commodity sector in one or another. The first one is in India, where Adani Group has brought two cement companies from Holcim and the second one is in Australia where Private Equity Firms CVC and KKR have shown interest in taking over Bramble's pallet operator.

There can be arguments made on the definition of pallets as a commodity or not. But the more important thing to observe is that the valuations given to 70 Million Ton per annum capacity are the same as the 345 million-pallet operator. These extremes show that central banks can bring down the moment till now and they need to be more aggressive to bring it down.

It is important to do because many countries already showing signs of recession in coming quarters and if the rate hikes are not accelerated then entering a recession with low rates would result in the introduction Negative Interest Rate Policy (NIRP) during the next tranche of easing that would bring inflation to double digits and no amount of printing will subside it for long.

Some deals are still happening at stretched valuations but if central banks can achieve the required even after a hard landing there will be de-rating in these companies for the medium term similar to 2007 deals.

Though the main leg of tightening is yet to begin the aggressive bidding by private equities will expose the banks leaving to the deal with large underwriting risk.

The largest of them all Softbank has already cautioned the VC world as it would only do a quarter of deals compared to its peak. This has come after it reported a loss of $26Bn hurting even its leading banks such as Mizhou and Goldman Sachs.


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