DAVOS, Switzerland (Reuters) - The manic dealmaking of the years
before the financial crisis may be some way off, but acquisitions were
certainly back on the agenda for the CEOs of many companies attending
the World Economic Forum in Davos over the past week.
Deals | Davos: China | Davos
Savage cost cutting, capital raising and debt refinancing mean that
a lot of the more profitable companies now have strong enough balance
sheets to be opportunistic if a deal is presented. The debt markets are
also open again to help finance deals, and market gains mean their
shares can be used as currency in transactions.
Buying growth through purchases may also be more attractive than
trying to expand current businesses organically, given concerns about
how fast the economies of Europe and the United States will recover
this year.
But the CEOs are generally looking for bolt-on acquisitions, not massive deals that transform their businesses.
Take Mike Fries, for example. As chief executive of pay-TV company Liberty Global (LBTYA.O) he is eager to expand beyond the 15 million subscribers Liberty has across 10 countries in Europe.
"We are opportunistic on the M&A front," Fries said. "If
something came up that fits us perfectly we would have to look at it."
He said that the strength of high-yield debt markets was fueling
such activity. It took less than two days for the company to raise
enough money for the $3 billion acquisition of Germany's Unitymedia at
the end of last year.
Also in the media sector, Thomson Reuters Corp (TRI.TO)(TRI.N)
CEO Thomas Glocer said the company was in a strong position to make
acquisitions, thanks in part to its opportunistic refinancing of debt
over last summer. Glocer said there was "a ton" of good businesses
coming onto the market.
TD Ameritrade Holding Corp (AMTD.O),
the second-biggest U.S. discount broker, has been a major consolidator
of the industry with 10 deals in about as many years, and its chairman,
Joe Moglia, made it clear that was going to continue.
"Literally every day we are trying to look at different
opportunities in the market place," he said, and that included eyeing
any of its rivals if they come up for sale. "There is probably still
some room left in the industry for consolidation," Moglia added.
PLACING BETS
Kraft Foods Inc's (KFT.N) $18.7 billion deal for Cadbury (CBRY.L)
was likely to make companies more confident as they consider big deals,
said Mark Foster, group chief executive for management consulting at
Accenture.
"Cost cutting and responding to the economic realities remains top
of mind for companies, but there are some leading companies that are
lifting their heads and starting to place bets," he said.
The heads of three of the biggest private equity companies in the
world, Stephen Schwarzman, Henry Kravis and David Rubenstein, made it
clear in interviews at Davos that they expect to do more acquisitions.
They will also be seeking to sell more of their current holdings
through initial public offerings or straight sales to companies.
And deals are not just about bankers' fees and executives' egos.
They also create business activity, boosting airlines, hotels and
restaurants -- as investment bankers, investors, consultants and
auditors take to the road.
"The IPO activity and the canceled projects from last year that are
being restarted, the negotiations for things coming up have created a
pretty spontaneous increase in demand," said Frits van Paasschen, the
CEO of luxury hotel chain Starwood Hotels & Resorts Worldwide Inc (HOT.N).
Brazilian and Chinese companies, bolstered by the relative strength
of their economies, are also set to make a significant contribution to
the dealmaking.
Brasil Foods (BRFS3.SA),
Brazil's biggest pork and poultry producer, is looking for ways to
expand around the world, said its co-chairman, Luiz Fernando Furlan.
The company was only formed last year after Perdigao took over Sadia --
a transaction still awaiting regulatory approval in Brazil.
"We have plans to invest outside, maybe the U.S. and the Middle East
and some other places," he said while declining to be specific on
particular targets.
PROTECTING STAFF
Former Deputy U.S. Treasury Secretary Robert Kimmitt said the
political climate in the United States was positive toward inbound
investment by the Chinese and others.
"We haven't seen the barriers to investment -- investment
protectionism -- as much as we have seen trade barriers rise," said
Kimmitt, who is now chairman of Deloitte's Center for Cross Border
Investment.
Still, there are some companies that will not be making M&A fees for the bankers.
Jim Goodnight, the founder and controlling shareholder of business
software company SAS, said he would not sell because he fears that a
buyer would just gut the company's workforce and culture -- a culture
that made it No. 1 in the latest Fortune magazine list of top 100
American companies to work for.
"I am not interested in selling the company because I really like to
try and protect the people that work here and one of the first things
an acquiring company does is lay off people, terminate people," he said.