Although attractive, M.&A. activity hardly a 'sure thing'
March 17, 2009
by Josh Sosland
It doesn’t seem a stretch to believe that last week’s pair of acquisitions unveiled in the pharmaceutical industry — Merck/Schering and Roche/Genentech — could presage heightened ferment in the grain-based foods industry. Like the pharma sector, grain-based foods and food processing shares generally have declined with the overall markets in the face of underlying business strengths. Core earnings of many companies in baking have held steady or have even continued to grow in the face of the economic slowdown.
The relative attraction of current share prices combined with the increasing allure of any company with stable earnings could boost chances of greater M.&A. activity.
Separate from valuations, strategic rationale also could play into encouraging business combinations, to strengthen food companies’ positions in a still difficult and consolidating retail environment, expanding products line or geographic footprints or any of the other individual pluses that may be perceived in a potential transaction. Yet, stepped-up M.&A. activity is hardly a "sure thing," especially as long as credit tightness persists and depressed buyer share prices make stock deals less attractive.
Also, many companies were burned by acquisitions earlier in the decade that did not evolve as planned. Those lessons have not been forgotten.