Manufacturers eye deals after downturn

CHICAGO (Reuters) - Major American manufacturing companies are starting to eye acquisitions again after pulling through the financial crisis looking lean and mean and finding themselves with renewed access to funding.

Their ability to slash costs and raise productivity in the past couple of years means that many are generating enough cash to consider deals, share buybacks or increasing dividends.

But that does not mean they are looking at transformational "bet the company" acquisitions -- the deals are more likely to be midsized transactions targeted at markets where the company already has a presence.

"The focus is on bolt-on acquisitions that add new capabilities, new products and allow us to grow in attractive segments of the company," Timken Co (TKR.N) Chief Executive Jim Griffith said on Monday.

Executives speaking at the Reuters Manufacturing and Transportation Summit in Chicago said the environment for deals has improved measurably since last year due to stability in the financing markets and improving valuations.

"The environment has certainly gotten a lot better than it was last year. In the middle of 2009, everybody was focused on liquidity and holding on to all the cash they had, valuations were terribly low and people were very nervous -- including most boards of directors," Caterpillar Inc (CAT.N) CEO Jim Owens said.

"Prices have bounced back from very low levels, but there are still some attractive opportunities out there -- better than they were in mid-'08," he said.

Executives speaking at the summit said they were looking for these bolt-on deals both in the United States and abroad. They said they would be opportunistic both in emerging markets like China and more mature European markets.

The crisis in Greece has not yet scared off manufacturers looking for deals. Terex Corp (TEX.N) CEO Ron DeFeo said a European deal was at the top of his "to-do list," and Agco's (AGCO.N) Martin Richenhagen said he had a pile of euros he could use for a takeover there if the right target presented itself.

FINANCING NO LONGER AN ISSUE

Industrial companies cut costs sharply through the downturn, laying off workers and shedding underperforming businesses.

Even though the economy has yet to fully recover, many of these companies have substantial cash piles that they can put to work for them.

General Electric Co (GE.N), for example, expects to end 2010 with more than $25 billion in cash, from working capital management, the sale of its security businesses and the sale of 51 percent of its NBC Universal media business to Comcast Corp.(CMCSA.O)

"We're looking carefully at smart, responsible ways to use" the cash, GE Vice Chairman John Rice said, noting that the company is currently considering deals that would eclipse a $1 billion price tag.

Also working in large manufacturers favor is that private equity firms have been less competitive of late, as their access to financing has been limited.

"The availability of financing to them is not at the same kind of ridiculous levels it was in 2008," said Timken's Griffith. "If you look at Timken, or companies like Timken, we're in the position that for a reasonable-sized acquisition, we can write a check. That certainly levels the playing field."

Still, some executives said the recovery in the United States could make deals a challenge going forward as the price tag for takeovers has risen quickly.

"Valuations came back quickly, and when valuations snapped back like they did, it made M&A a challenge," Terex's DeFeo said. "You want to buy something based on what tomorrow will be, and if you have to pay a high multiple already, you run the risk of not achieving your financial returns."

(Reporting by Michael Erman, editing by Matthew Lewis)