Could market rebound ease way for M&A?

May 14, 2009

The drop in U.S. stocks through the first three months of 2009 did little to spur merger activity in the U.S. industrial sector, but a top executive at blue-chip manufacturer United Technologies Corp argued on Thursday that the recent rebound in share prices could spur buying.

“This recovery that we’ve seen in the market probably helps because it sets a more realistic baseline from which to negotiate,” said Greg Hayes, chief financial officer of the world’s largest maker of elevators and air conditioners, which has said it plans to be aggressive in seeking acquisitions this year. “Obviously you’d like to buy everything as cheaply as you can, but you have to be realistic. It’s probably a better market today than it was even six weeks ago.”

The rest of the year may put his thesis to the test, as the falloff in M&A activity was dramatic in the first quarter. Data from PricewaterhouseCoopers showed¬†just 13 industrial sector deals worth a total of $1.6 billion. That’s down from 43 deals worth $8 billion¬†in the first quarter of 2008.

With the Standard & Poor’s capital goods industry index — which had been down as much as 37 percent for the year in early March — now down just 6 percent, Hayes told an investor conference he was confident there were deals to do.

“There are still good valuations out there at these levels,” Hayes said.

But Hayes — a potential buyer — may have a very different idea of what constitutes good value than potential sellers, such as Textron Inc – which saw its shares surge late last month after a Middle Eastern newspaper reported that buyers were circling the company.

“This is not an appropriate time to be selling much in the way of assets, I don’t think,” Scott Donnelly, chief operating officer of world’s largest maker of corporate jets, told the same conference. “We want to avoid having to sell any of our core assets.”

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