Companies put cash to work, crank up the deals.


NEW YORK — Big deals are a big deal again.
From Caterpillar to Chevron to Google, some of the best-known names in corporate America are scooping up smaller companies, finally putting the piles of cash they’ve been sitting on to use and positioning themselves for a stronger economic recovery.

The volume of mergers and acquisitions is still running well below what it was in 2007 before the Great Recession, but the burst in activity is a sign of economic vitality and shows that companies are starting to shake off some of their caution.
“Our pipeline is bursting,” says Robert Profusek, head of mergers and acquisitions at the law firm Jones Day, who advised Continental Airlines when it was acquired by the parent of United for $3.2 billion. “We are gearing up for an incredible M&A boom.”

“Our pipeline is bursting,” says Robert Profusek, head of mergers and acquisitions at the law firm Jones Day, who advised Continental Airlines when it was acquired by the parent of United for $3.2 billion. “We are gearing up for an incredible M&A boom.”
M&A volume reached $2.25 trillion in the first 10 months of the year, a 28 percent increase over last year. August was the highest month on record, with $307 billion in deals, more than double August 2009, according to Dealogic, which tracks such data. October remained strong with $202 billion deals, up 32 percent from last year.

M&A volume reached $2.25 trillion in the first 10 months of the year, a 28 percent increase over last year. August was the highest month on record, with $307 billion in deals, more than double August 2009, according to Dealogic, which tracks such data. October remained strong with $202 billion deals, up 32 percent from last year.
“It’s an early indicator that confidence is shifting,” says George Geis, faculty director of the mergers and acquisitions executive program at the University of California, Los Angeles.

“It’s an early indicator that confidence is shifting,” says George Geis, faculty director of the mergers and acquisitions executive program at the University of California, Los Angeles.
Almost all the deals are companies buying companies. Private-equity firms, which spurred the buyout boom last decade, have made just 8 percent of the acquisitions this year, compared with 23 percent in 2006.

Almost all the deals are companies buying companies. Private-equity firms, which spurred the buyout boom last decade, have made just 8 percent of the acquisitions this year, compared with 23 percent in 2006.
Typical is Caterpillar Inc.’s announcement Monday that it will buy Bucyrus International Inc. for $7.6 billion. Caterpillar, the world’s largest maker of construction and mining equipment, was sitting on $2.3 billion in cash at the end of the third quarter. The acquisition allows Caterpillar to add to its line of mining equipment, which is in high demand in emerging markets.

Typical is Caterpillar Inc.’s announcement Monday that it will buy Bucyrus International Inc. for $7.6 billion. Caterpillar, the world’s largest maker of construction and mining equipment, was sitting on $2.3 billion in cash at the end of the third quarter. The acquisition allows Caterpillar to add to its line of mining equipment, which is in high demand in emerging markets.
Just last week Chevron Corp. said it would buy natural gas producer Atlas Energy Inc. for $4.3 billion, giving the oil company an entry into the rich gas fields in the eastern part of the U.S.

Just last week Chevron Corp. said it would buy natural gas producer Atlas Energy Inc. for $4.3 billion, giving the oil company an entry into the rich gas fields in the eastern part of the U.S.
Among the other deals in the past three months, Dove soap maker Unilever PLC bought the VO5 haircare company Alberto-Culver Co. for $3.7 billion, and Southwest Airlines Co. bought AirTran Holdings Inc. for $1.4 billion. Drug giant Pfizer Inc. bought pain medication maker King Pharmaceuticals Inc. for $3.6 billion, and Google Inc. bought BlindType, a startup that corrects sloppy typing on mobile phones for an undisclosed price.

Among the other deals in the past three months, Dove soap maker Unilever PLC bought the VO5 haircare company Alberto-Culver Co. for $3.7 billion, and Southwest Airlines Co. bought AirTran Holdings Inc. for $1.4 billion. Drug giant Pfizer Inc. bought pain medication maker King Pharmaceuticals Inc. for $3.6 billion, and Google Inc. bought BlindType, a startup that corrects sloppy typing on mobile phones for an undisclosed price.
The deals are happening, in part, because companies have amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier.

The deals are happening, in part, because companies have amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier.

Story: Caterpillar agrees to buy Bucyrus for $7.6B

Few things in business conjure up as much excitement as wheeling and dealing. Mergers are a high-stakes, secretive game and often reflect an ambitious executive’s eagerness to leave a personal stamp on the company. Some of that atmosphere is back. The recent Southwest Airlines-AirTran deal used secret codes such as “falcon” and “cowboy” in e-mails and documents exchanged between executives to keep their talks confidential. But unlike the dealmaking of the 1990s and most of the 2000s, ego-driven blockbuster deals are rare. Most deals this year have been smaller and driven by strategic decisions emerging from the recession.
Every recession brings change. Products, and sometimes companies, become obsolete. Consumers’ tastes change. Hard times drive innovation, which leads to new technologies and products. Companies that want to be prepared for an improving economy pursue acquisitions because they are a quick way to fill holes in their businesses, says Robert Bruner, an M&A expert and dean of the Darden School of Business at the University of Virginia.

Every recession brings change. Products, and sometimes companies, become obsolete. Consumers’ tastes change. Hard times drive innovation, which leads to new technologies and products. Companies that want to be prepared for an improving economy pursue acquisitions because they are a quick way to fill holes in their businesses, says Robert Bruner, an M&A expert and dean of the Darden School of Business at the University of Virginia.
One positive: The deals are less likely to result in the mass layoffs that often come with mergers and acquisitions. Hewlett-Packard Co.’s $25 billion deal for Compaq in 2001 resulted in at least 15,000 layoffs, and Bank of America Corp.’s acquisition of Merrill Lynch at the height of the financial crisis resulted in 35,000 job cuts. There’s no doubt that newly combined companies will cut redundant jobs. But they will not be at the mass scale previously seen because the deep recession wrung out the fat from the work force, Bruner says.

One positive: The deals are less likely to result in the mass layoffs that often come with mergers and acquisitions. Hewlett-Packard Co.’s $25 billion deal for Compaq in 2001 resulted in at least 15,000 layoffs, and Bank of America Corp.’s acquisition of Merrill Lynch at the height of the financial crisis resulted in 35,000 job cuts. There’s no doubt that newly combined companies will cut redundant jobs. But they will not be at the mass scale previously seen because the deep recession wrung out the fat from the work force, Bruner says.
Chris Young, head of takeover defense at Credit Suisse Group’s mergers & acquisitions unit, says more companies are willing to consider deals than just a few months ago.

Chris Young, head of takeover defense at Credit Suisse Group’s mergers & acquisitions unit, says more companies are willing to consider deals than just a few months ago.

“When the prevailing view is that the world is going to end, a director would be more concerned about making sure to hoard cash and get the house in order rather than making acquisitions,” Young says. Now, clients have stopped talking of a double-drip recession and started discussing “ways to restart the engine of growth.”

Technology giant IBM Corp. has made 15 acquisitions this year, up from eight in 2009. Each is in an area that has the potential for high growth.

“We choose companies that will help us fill a missing piece in our portfolio or expand what we already have,” says Steve Mills, a senior vice president at IBM and the architect of its acquisitions.

3M Co., which makes Post-It notes and Scotch tape, is on a buying spree. CEO George Buckley said he would spend $2 billion on acquisitions in 2010, double the amount last year. The acquisitions range from Ross Reels, a manufacturer of fly fishing reels, to Arizant, a maker of specialty medical products.

Google has made 20 acquisitions so far this year, compared with eight the previous two years combined. Most acquisitions are in rapidly growing areas like smart phones and social networking.

Executives from disparate businesses are pumping up an atmosphere of anticipation too. Executives at BMW AG and U.S. Bancorp say they are looking for opportunities.

“This is the time to buy and position yourself for the takeoff, even if there is the risk of a double-dip (in the economy),” says Thomas Lys, who teaches mergers and acquisition at the Kellogg School of Management at Northwestern University. “No guts, no glory.”

Avatar
Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

Recent Posts

Moderna forecasts $18.4 billion revenue for 2021

Moderna forecasts $18.4 billion revenue for 2021

Moderna Inc., the Boston-based biotech startup, reported its fourth quarter and 2020 fiscal year results, where it announced that it hoped t...
11 hours ago
Hyundai Motor recalls 81,000 EVs for battery defect, may prove to be the costliest recall

Hyundai Motor recalls 81,000 EVs for battery defect, may prove to be the costliest recall

Hyundai Motor says the vehicle recalls are expected to cost the company about 1 trillion won or an estimated $900 million. In South Korea, 2...
12 hours ago
Accor reports $2.5 billion loss, hopeful of a recovery by next year

Accor reports $2.5 billion loss, hopeful of a recovery by next year

Accor, Europe’s largest hotel chain, reported a $2.5 billion net loss in 2020 due to the deterioration in the industry linked to the sprea...
1 day ago
Is the sun shining again on AMC stock?

Is the sun shining again on AMC stock?

As the old adage goes, good things come to those who wait. This might come true for movie theatre operator AMC Entertainment Holdings Inc. w...
2 days ago
HSBC turns to Asia for future growth

HSBC turns to Asia for future growth

The bank’s maximum pre-tax benefits (90%) come from its Asian business. Chairman Mark Tucker and chief executive Noel Quinn are strugg...
2 days ago
Wells Fargo to forego asset management unit to private equity for $2.1 billion

Wells Fargo to forego asset management unit to private equity for $2.1 billion

Wells Fargo has been underperforming for the past few years and has undertaken cost-cutting and restructuring to improve its numbers. Wells ...
2 days ago