Alexander Coolidge reports:
Hill-Rom spent $400 million to cut into the scalpel business.
General Cable wired $185 million to grow its aluminum operation.
Multi-Color got to slap its logo on a Scottish label-maker for $25.9 million.
Public companies listed on The Enquirer 80 – stock companies based here or with major operations in Greater Cincinnati and Northern Kentucky – spent more than $58 billion acquiring other companies in 2012.
That spending spree is the largest since 2008 and more than they spent in 2010 and 2011 combined, an Enquirer analysis shows.
The growing merger and acquisition activity here and across the country is a positive sign for the economy, analysts say.
Locally-based companies alone spent more than $1 billion in 2012 acquiring rivals.
“M&A traditionally happens in times of economic upturns,” said Matt McCormick, a portfolio manager with Bahl & Gaynor downtown. “Executives are putting risk to work. They’re not making acquisitions for the heck of it, they’re doing it because they’re going to make more money.”
Nationally, the deal-making has snapped back in the past two years after dropping off in 2010. Nearly 1,100 deals worth $470 billion were closed in 2012, according to Bloomberg data.
Companies continue to spend as economy improves further
Analysts say the deal-making is a natural result of economic recovery, however tentative.
Heading into a downturn, companies typically slash expenditures and horde cash. At the end of 2011, Enquirer 80 companies had a combined cash stash of $385 billion – up more than 50 percent in five years.
But as their safety funds swell, pressure mounts to put that money to work to grow profits as the worst of an economic downturn passes. A fitful, tentative recovery actually might spur further deal-making.
Valerie Newell, chairman and managing director of Riverpoint Capital Management downtown, said some companies have a lot of cash but are not seeing sales and profits recover yet. One way to grow is to buy a rival.
“If it’s difficult to grow, you can buy growth by buying another company and adding their customers,” Newell said. “It’s growing inorganically. It’s a decent strategy in a slow-growth economy if you’re not paying too much.”
Jay Wertz, director of wealth advisory services at Johnson Investment Counsel in Monfort Heights, said continued political and economic uncertainty are still keeping a lot of companies on the sidelines, flush with cash. Still, he believes deal-making will only increase.
“M&A is likely to pick up in 2013 significantly,” he said. “Businesses are starting to feel enough uncertainty has lifted.”
Deals allow moves to desirable markets
Deals for local companies in 2012 came both large and small.
Hillenbrand’s $303 million acquisition of Germany’s Coperion altered the company’s revenue stream. Now Hillenbrand’s storied casket-making business accounts for just one-third of all revenue; the manufacture of factory equipment makes up the rest.
By contrast, Macy’s made a bite-size expansion when it spent $15 million for a minority stake in an e-commerce site selling clothes in China.
The common denominator was that each acquisition took the companies quickly into a desired direction.
Companies often buy another business as a speedy way of growing into a market rather than trying to build a presence from scratch.
Multi-Color Corp. chief executive Nigel Vinecombe said his company’s acquisition of Labelgraphics Holdings in Glasgow is the latest in a string of deals that’s building its label-making business serving the wine and spirits industry. Union Township-based Multi-Color has similar operations – several acquired – in Australia, South Africa, California, Italy, France, Chile and Argentina.
“We want to develop a global footprint to support the industry around the world,” he said.
Ron Stowell, chief financial officer of Blue Ash-based LSI Industries Inc., said his company bought a Beaverton, Ore., start-up for $3.2 million because it had developed vital technology it is anxious to deploy.
The acquired company, Virticus Corp., created a system of controlling and monitoring light systems remotely via the Internet.
“The technology is something we very much want and need,” Stowell said, adding it will allow customers with lit parking lots to measure their energy consumption and dim their lighting during off-peak hours.
Batesville-based Hill-Rom Holdings Inc., which makes hospital beds and other health care equipment, expanded into consumable medical products like scalpels and specialty needles with its purchase of Aspen Surgical Products.
Chief executive John Greisch said in a statement that the deal “expands our global portfolio beyond our core franchise” with a business that’s expected to immediately boost profits and sales.
Highland Heights-based General Cable Corp. said its $185 million acquisition of Alcan Cable from Rio Tinto PLC would grow its North American aluminum business.
Part of the new operations expanded the company’s reach in the Chinese market, which represents a one-third share of the worldwide market for wire and cable demand.
“Alcan Cable’s brand names are the gold standard for quality, packaging and service in the North American aluminum cable industry,” General Cable chief executive Gregory Kenny said in a statement. “In addition, they are highly skilled in aluminum rod manufacturing and have built a state-of-the-art facility in China that is successfully penetrating the domestic construction cable market.”