IntraLinks (NYSE: IL) VP Matt Porzio On The Effect Of Fed Rate Hikes On M&A Activity

A little more than a month ago, Dec. 16, 2015, the Federal Reserve raised interest rates for the first time in a decade. The hike went from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.50 percent.

Following a shaky start to the market at the beginning of the New Year, a Reuters poll of economists indicated a strong belief the Fed would not raise rates more than three times in 2016.

Meanwhile, Matt Porzio, VP of M&A Strategy and Marketing for IntraLinks IL was on record saying he believed uncertainly leading up to the Dec. 16 announcement had already caused damage to the M&A outlook for the early part of 2016.

Benzinga recently followed up with Porzio to get a little more detail on his take regarding the connection between rate hikes by the Fed and M&A activity for 2016.

Related: IntraLinks Deal Flow Predictor: Global M&A Activity To Show Modest Q1 Growth In 2016

Benzinga: You seem to be saying “uncertainty” is more important than the amount of interest rate hikes. Why is that?

Matt Porzio: We knew the Fed was considering an interest rate hike. It was never really a question of “if” it was going to happen, but “when.”

Even more uncertainty around the “when" was called into question after the Fed balked on the rate hike back in Q3. So, while dealmakers where not concerned with the rate increase itself, it seems that future cadence is more of a concern, after nearly 10 years at basically 0 percent.

The Fed would not have increased rates a significant level, so again, there wasn’t too much concern – just timing issues.

BZ: Why do you feel the “damage has been done (with regard to helping create a cooldown in M&A)?”

Porzio: Based on our experience, M&A diligence takes around six months to complete, so those starting diligence during the second half of 2015 would, reasonably, announce their deals in late Q4 2015, through the first half of 2016.

We think the market was concerned about rate movements and mixed messages starting in October 2015, and saw the effects of that uncertainty, and other factors as captured in our most recent Deal Flow Predictor (DFP) results, which predicts 7 percent moderate growth in Q1 2016 over Q1 2015.

The IntraLinks DFP has been independently verified as an accurate predictor of future changes in the number of announced global M&A transactions, with QoQ percentage changes in the Intralinks DFP typically being reflected on average six months later in announced deal volumes, as reported by Thomson Reuters.

BZ: Isn’t there actually more “certainty” now that we know the hike and (sort of) what the Feds plan moving forward? Won’t that actually help soothe dealmaker jitters?

Porzio: That’s our anticipation as well. Now that dealmakers can confirm that the rates will be modest and flat, we can assume that interest rates will be less of a factor when deciding to execute a deal.

BZ: What evidence has IntraLinks uncovered that supports either an optimistic or pessimistic mood among M&A professionals?

Porzio: According to results of a sentiment survey Intralinks executed among 680 global M&A professionals, the overall outlook for 2016 is split down the middle, with 50 percent reporting that they are optimistic about the current deal environment and 49 percent expect to participate in more deals in the first half of 2016 than they did six months ago.

Forty-seven percent think M&A deals in Q1 2016 in their respective region will be higher than in Q1 2015.

BZ: You mentioned predictions of a cooldown in Q1. Can you place any sort of parameters on that?

Porzio: Coming off a record year in 2015, we’ll continue to see moderate growth in Q1 2016 – a slight cooldown from the level of activity we’ve become accustomed to this year.

At the time of this writing, Jim Probasco  had no position in any mentioned securities.