Report from Davos: Blackstone Sees Financial Services as an Opportunity

(Reuters) – Mergers and acquisitions will get a fillip from consolidation in hard-hit industries despite the financial downturn, as the strong eat the weak.

M&A business has slumped in the past year but companies with strong balance sheets are out bargain-hunting.

Business leaders meeting in Davos this week said they saw opportunities in the global downturn, though leverage is out and a hard-nosed focus on cost cutting is the order of the day.

“We’re going to see further waves of consolidation as weaker players are taken over by stronger players,” said Mark Foster, global head of management consulting at Accenture.

“The retail industry is going to go through a big consolidation phase, as will the consumer goods, pharmaceuticals and communications industries.”

With economies around the globe tipping into recession and credit markets gummed up, the volume of mergers worldwide dropped 30 percent last year, according to data from Thomson Reuters.

That decline isn’t going to reverse any time soon but Pfizer Inc’s $68 billion deal to buy Wyeth, announced on Monday, shows big deals — especially where they offer big cost reductions — can still be done.

In the same sector, Roche Holding AG on Friday launched a hostile bid for the 44 percent of Genentech Inc it doesn’t already own, at a lower price than one offered in July.

These moves are likely to spark more M&A in healthcare, where cash flows remain strong despite deep-seated structural problems due to a “cliff” of patent expiries.

Other potential predators, however, will not fare so well.

Dow Chemical Co CEO Andrew Liveris — a Davos veteran — was notable for his absence in the Swiss ski resort this week, after failing to close his firm’s planned acquisition of rival Rohm and Haas Co by a deadline of Jan. 27.


Bankers and executives say the recession presents openings for cash-rich suitors in a number of industries.

“The big sector, obviously, in terms of restructuring, is financial services,” said Blackstone Group senior managing director John Studzinski.

“There is also an enormous amount of work in energy and infrastructure … I think that trend will continue.”

Duke Energy CEO Jim Rogers is among those watching closely for the chance to buy attractively priced assets.

“The opportunities will only increase over time and we’re always looking for opportunities to strengthen our position,” he said.

Elsewhere, software maker Adobe Systems Inc said it would be “aggressive” with small acquisitions this year, medical devices maker Medtronic Inc plans a series of bolt-on purchases and electronics retailer Best Buy Co is eyeing bankrupt store locations.

With cash now upper-most in executives’ minds, deal-makers will be wary rather than gung-ho.

“There will be a lot of opportunities. The key question is what is good to do for the good of the company and I think we should be very cautious about opportunities and not run too fast,” said Maurice Levy, head of French advertising giant Publicis.

Acquisition finance remains tight and many private-equity firms are no longer able to fund deals through cheap debt, which plays into the hands of companies with internally generated funds, according to Tony Poulter, global head of consulting at PricewaterhouseCoopers.

“CEOs are focusing on the fact that this is a good time to gain market share but clearly they are not got to do it at any price,” he said.

“I think people are going to be looking for opportunities but they are obviously more risk-averse. They are going to want to be confident that the opportunities are secure and well-priced.”

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By Ben Hirschler
(Additional reporting by Nichola Groom)