10 May 2011

Companies pursue growth, hit the acquisition trail

At first blush it appears that a new month may have kick started a new M&A drive by a number of companies looking to accelerate growth, boost annual sales and roll out expansion in high growth markets. Last week global electronics and electrical engineering powerhouse Siemens, often mooted as a bellwether for Europe's manufacturing industry, announced plans to hit the acquisition trail after reporting better-than-expected earnings results for the second quarter of 2011 and raising its forecast for fiscal 2011 to at least EUR 7.50 billion from EUR 4.26 billion a year earlier.

Chief financial officer Joe Kaeser revealed in a conference for analysts that the German industrial giant is actively on the lookout for possible bolt-on acquisitions, of between EUR 1.00 billion and EUR 3.00 billion, after largely refraining from making purchases over the last three years. According to Zephyr data, it was directly involved in 11 acquisitions between the beginning of January 2008 and the end of December 2010.

Albemarle, a leading developer and supplier of hydrocracking catalysts, is also jumping on the acquisition bandwagon, unveiling plans to implement a selective M&A strategy which should add between USD 1.00 billion and USD 1.20 billion in annual sales through 2015.

The Louisiana-based developer and marketer of speciality chemicals for markets such as consumer electronics, packaging and petroleum refining, is aiming to double its revenue from USD 2.40 billion in fiscal 2010 to USD 5.60 billion by 2015. Its financial outlook for 2015 also includes raising earnings before interest, tax, depreciation and amortisation to USD 1.40 billion from USD 500 million in 2010 and increasing earnings per share from USD 3.56 to USD 9.75 over the five year period. These figures are all dependent on whether Albemarle meets the targeted amount of acquisitions of course; it said it has set aside more than USD 2.00 billion in order to meet this aim.

Sun Life Financial is not planning to sit back either, as chief executive Don Stewart said the Canadian insurer is focusing on expansion in Asia after buying a 49 per cent stake in small Southeast Asian life insurer Grepalife Financial – boosting its presence in the growing Philippines bancassurance sector – in the first quarter.

Cited by Reuters, Stewart said in a conference call last week: "I generally don't comment too much on geography, because sometimes deals show up in unexpected places, but I would say that Latin America is not a probable arena of future expansion.” When asked about declining acquisition targets in the region, Steward added: "We continue to see opportunities in different places in Asia of varying sizes. There will continue to be opportunities in Asia."

Dual-listed resources juggernaut Rio Tinto has also indicated a wish to follow up on possible opportunities; chairman Jan du Plessis told shareholders in an annual meeting in Perth that while the company will mainly focus on organic growth it would also continue to invest in “carefully targeted” small-to medium-sized acquisitions.

All in all 2011 could mark a turnaround of M&A activity as companies hit the acquisition trail in the pursuit of growth after tightening their belts in recent years, though only time will tell.

© Zephyr