I should be terrified. Watching Netflix’s House of Dynamite was definitely disturbing. In real life, the guy with the nuclear codes is having another Canada tantrum and refusing to rule out a third presidential term. Meanwhile, financial market headlines are full of ‘bubble’ talk as Hallowe’en approaches and yet…… I’m suddenly very optimistic. It might be Hallowe’en season but there are two other ‘seasons’ in full swing and promise significant wealth enhancement. Firstly, we are in the middle of corporate earnings results for Q3. Secondly, Irish earners will soon be looking for opportunities before year end to invest in EIIS-eligible deals to reduce their income tax costs and balance their investment portfolios. My sense is that the stars are aligning nicely for a further burst of action in the next few months. As always, companies need to lead so check out the latest developments.
We mentioned Q3 earnings season but we didn’t mention the “Magnificent 7” superstar tech stocks dominating the financial headlines. Deliberately so. The latest ‘tot’ of Q3 earnings reveals a much broader participation of companies in healthy earnings reports. So far, 145 companies out of the S&P 500 index have reported Q3 earnings. A whopping 84% of those companies “beat” analysts earnings forecasts which is the highest “beat” rate seen in four years (Source: Bloomberg). Average earnings growth across the reporting companies is on track for a year-on-year acceleration of 15%. The bottom line, literally, is that operational fundamentals are very strong. Critically, this profit growth is spreading to smaller companies; the Russell 2000 index of smaller companies is clocking an even higher profit acceleration of 25%. You might have to pinch yourself, and check your notes re current challenges faced by companies. Try these for starters:
- Global disruption to supply chains and energy markets due to Ukraine war.
- Relatively high interest rates since 2022.
- Tariff and trade chaos thanks to the unstable ‘genius’ in the White House.
In many ways these are historical known ‘unknowns’ in Rumsfeld-speak. However, the positive twist on this uncertainty is that, if companies are able to generate significant profit growth despite these challenges, then this generation of corporates must be fundamentally very robust. This opens up another possibility, a very exciting one. What if interest rates were now beginning to fall and China and the US were about to agree a trade framework? Well, there’s a 97% chance (per money markets) of the Fed cutting interest rates this week and the news from the Trump trip to Asia is positive on a China deal happening too. Dare we dream of a Ukraine breakthrough? We might ease up on the Kool-Aid there, but we do note a weekend article in The Telegraph reporting on Putin’s fears of a coup. We will continue to dream. However, the deal junkies in the private equity world seem to be picking up on the same fundamental positivity.
Blackstone’s COO, Jon Gray, in its Q3 results call with Wall Street analysts was certainly pointing to more activity:
“Directionally healthier markets, more liquid markets, better credit markets, better IPO markets; that’s healthier for realizations….The deal dam is breaking.”
Closer to home, private equity exits in Europe’s financial services have reached an all-time high with 77 deals year-to-date worth $31 billion. As we wrote last week…… Banks are SOOOO back! However, it would be a mistake to think this was frothy financial ‘engineering’. In fact, it’s more engineering than finance on a global basis. Private equity investment deals in global infrastructure have rocketed by 44% year-on-year to $25 billion. That’s the second highest total deal value seen in a decade. Clearly, there is a lot more going on than an AI revolution. In the Spark Private world of venture funding and smaller private equity deals we keep a close eye on smaller company activity benchmarks. Two caught the eye this week:
- Smaller company tech equity indices in the US are up 23%…. in just 3 months.
- Small company industrials are hitting new all-time highs and breaking out on technical charts.
An environment where global trade tensions, interest rates, corporate earnings, smaller company valuations and private equity deal activity are all moving in the right direction will undoubtedly generate more deal opportunities. Pitchbook’s latest review of European private equity (PE) activity is telling:
“A run of large-cap deals in Q3, buoyed by interest rate cuts and improved macro stability, saw European PE dealmaking grow to €177.1 billion (about $206.7 billion) in Q3…….37% of overall PE deal value, €66 billion, came via 19 deals worth over €1 billion—more than Q1 and Q2’s mega-deal value combined. In total, 48 mega-deals took place in Europe over the first nine months of the year. That figure is expected to approach 70 by year-end, making 2025 one of the most active years for such deals in the region on record.”
So enough of the headlines, where’s the action for private investors? The key questions for many investors at this time of year are…
How can I access the deal flow?
Can I do it in a tax friendly manner?
Spark Private can help on both fronts. More specifically, investors can quickly build a well-diversified portfolio of 7-8 companies with top-calibre teams, EIIS tax rebates and rapid growth structural opportunities in a matter of months. Now, for the action…..YOUR action.
