Summit News

Search for growth seen driving mergers

NEW YORK (Reuters) - Companies have cut costs to the bone to survive the recession, but now the push for growth could spark a jump in mergers and acquisitions, the CEO of financial advisory firm AlixPartners LLP said on Wednesday.

Fred Crawford, chief executive of the turnaround and advisory firm since June 2008, said his firm is getting more calls from companies seeking to do due diligence on possible acquisition targets.

“I think we’re seeing the beginning of a period of mergers and acquisitions, where rather than go into another refinancing cycle that may or may not yield a good outcome, you may see some marriages of convenience or necessity,” Crawford said at the Reuters Private Equity and Hedge Funds Summit in New York.

As company managers look to build their businesses this year, deals may be the most logical avenue for growth, he said.

“You can get a one-time improvement by cost-cutting, but then once that’s done you’ve got to stay disciplined and, generally speaking, you need to grow,” Crawford said.

“In a sluggish economy where maintaining market share equals no growth, people are going to find they need to buy growth.”

Crawford said he was most often seeing talk of deals where two underperforming companies come together to share their costs and drive earnings and cash flow through synergies, in a “marriage of necessity.”

He is also seeing talk of deals where a weak company hopes to sell itself to a stronger firm. “It’s actually not great pricing, but it’s better than the alternative,” he said.

Deals are being proposed across all sectors, and some sectors that were cold last year, like retail, are beginning to heat up, he said. Cyclical businesses that begin to revive after a recession could also pick up steam.

Crawford said he also expects a second round of cost-cutting beginning later this year, as the overall economic environment is still flat to slightly contracting.

But cost cuts alone will not provide the growth some management teams are looking for, and some companies will have to buy growth to meet investor expectations, he said.

“I am seeing a lot of business forecasts and business plans that I think are sunny-day forecasts,” Crawford said.

“Management teams are optimistic by nature, and that’s probably a good thing. Who wants to have a management team who says, ‘Well, I think we might be flat.’ That’s pretty uninspiring.”

Reporting by Emily Chasan; editing by John Wallace