Confidence, cash make big deals a big deal again
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."
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.
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.
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 United States.
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.
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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.