NEW YORK (Reuters) – Merger and acquisition activity could pick up in the manufacturing industry over the second half of the year as better-capitalized companies start to take advantage of relative bargains, a high-level Barclays (BARC.L) investment banker said on Friday.
“We are a seeing a number of large, well-capitalized companies that are looking much more closely at acquisitions today than, say, four or five months ago,” said Robert Bertagna, managing director and co-head of industrial coverage at Barclays Capital, speaking ahead of the Reuters Manufacturing Summit, which will be held in Chicago next week.
“They are clearly putting certain companies in their gun sights and feeling a little more comfortable that now may be the right time,” he said.
Manufacturing deal volume fell about 85 percent in the fourth quarter of 2008 with only 11 deals announced during the period, according to PricewaterhouseCoopers. The average deal value dipped as well.
Bertagna said most manufacturing companies are still working to conserve cash, but as the second half of the year rolls around those larger companies might start to pull the trigger.
Deals offer the companies cheap entry into new markets, franchises and technologies, he said.
On the other end of the financial spectrum, manufacturers who are currently under financial pressure might need to do deals in order to stay afloat.
“The process of losing liquidity happens a lot faster than one expects,” Bertagna said.
As managers start to see their competitors go under, they will start to look for deals — to take the money while they can, and not when they are forced to.
Moreover, as the current recession drags on, weaker companies will start to adjust to the reality that their market value has lowered, Bertagna said.
“Four or five months ago it was a lot easier for companies whose stock prices were suffering to just say no. But this has been going on now for a year or 18 months in some cases. There’s a certain seasoning, a certain recalibrating of expectations that needs to take place,” he said.
(Reporting by Michael Erman, editing by Matthew Lewis)