Looking for targets: the sectors to watch
One effect of the financial crisis has been to bring into sharp contrast the gulf that exists between the strongest and weakest companies. Those companies that successfully recapitalised over the past 18 months and those in a position to secure bank lending have an advantage over those that have been unable to repair balance sheets and are vulnerable to hostile takeover.
Tom Willett, global head of M&A at RBS, said: “Over the past few months, a number of companies that were in financial difficulty have successfully raised funds and brought themselves back into a position where they can once again consider proactive M&A activity. Others have raised funds opportunistically with an eye on future growth.”
Analysts at Credit Suisse have identified some of the companies and sectors most likely to witness M&A activity as a result of this disparity.
Insurance
Most of the M&A in the European insurance sector is likely to be focused on buyouts of non-quoted businesses, according to Credit Suisse. Activity could come from divestments by distressed groups, such as AIG, Aegon and ING, banks seeking to offload non-core insurance businesses and governments looking to dispose of businesses acquired indirectly through bank bailouts, such as the potential sale of ASR Verzekeringen in the Netherlands.
Pharma
M&A is likely to be a key feature of the pharma and biotech sectors as major drug patents expire and companies look for assets and cost savings to fill the earnings gap. Stada Arzneimittel, Shire Pharmaceuticals and Elan are potential targets, while AstraZeneca, GlaxoSmithKline and Novo Nordisk are well positioned to acquire due to net cash or low balance sheet gearing.
Aerospace
Consolidation of aerospace suppliers is a theme across the industry. Credit Suisse sees UK engineering group Meggitt as an obvious target due to its market-leading positions in its niches, coupled with high returns and high barriers to entry. A major issue for the company is leverage, but that would be removed by an acquirer, according to the analysts. In terms of buyers, BAE Systems is effectively ungeared and has had a strong record for acquisitions.
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