CINCINNATI - Cincinnati companies are starting the year on a buying binge, having announced nearly $1.3 billion in transactions since Jan. 1.
It’s part a national trend that has some experts predicting a breakout year for mergers and acquisitions. Publicly-traded companies have record amounts of cash on their balance sheets. Private equity investors are looking to redeploy their Wall Street wealth. And lenders are getting more aggressive in financing business transactions.
It all creates a “perfect storm” for deal making, said Bill Watkins, group head of Harris Williams & Co., a Cleveland –based company that advises buyers and sellers on mergers and acquisitions.
“We are in a generational peak for valuations,” Watkins said. “The fundamentals around capital and interest in exploring (mergers and acquisitions) are at all-time highs. So, this is an incredible time if you want to be a seller of a business.”
Data from S&P Capital IQ shows 33 publicly-traded companies based in Cincinnati have $19.5 billion in cash on their balance sheets, based on the most recent filings of quarterly financial reports. Those same companies announced five acquisitions worth a combined $1.26 billion since Jan. 1, compared to 15 deals worth $3.15 billion in all of 2013.
It’s not just public companies in the buying mood. Milacron Inc., C.M. Paula Co. and Pure Romance LLC are among at least five privately-held companies in the region to announce acquisitions this year.
Cincinnati companies are by no means buyers only. Ashland Inc. recently announced the $1.8 billion sale of its water technologies unit and LCA Vision Inc. announced on Feb. 14 that it will be acquired by a Pennsylvania –based company, PhotoMedex, in a deal worth $106.4 million. And Procter & Gamble Co., which last week announced the sale of its bleach business, has also retained an investment bank to shop its concierge health business, MDVIP, according to the Wall Street Journal .
In most cases, the deal makers say they’re acquiring with the goal of increasing revenue, profits and jobs. Experts who follow mergers and acquisition activity say the recent trend is positive sign for the local economy.
“It shows people are willing to deploy capital and put capital to work,” said Jeremy Hayden, attorney with the Frost Brown Todd law firm Downtown. “They’ve got a lot of dry powder or cash on the books. They’ve got the question of: 'How do we deliver more shareholder value?' They’ve done all the expense cutting they can do, right? Organic growth is pretty tough. So, if you really want growth you’ve got to go out there and buy that growth.”
That’s exactly what Convergys Corp. is hoping to accomplish from its recently announced acquisition of Stream Global Services Inc. The $820 million purchase will make Convergys the world’s largest customer-management services provider and grow its total revenue to more than $3 billion. In a Feb. 5 call with analysts, Convergys CEO Andrea Ayers said the combined companies have more growth potential than they could have achieved separately.
“There are capabilities that they have in terms of languages, countries, European presence, et cetera, that are very much attractive to the core existing Convergys client base,” Ayers said. “And then there are capabilities that we have that Stream does not have today that are equally attractive to their client base.”
American Financial Group, which announced the $250 million acquisition of workers compensation insurer Summit Holdings Southeast Inc. on Jan. 9, recently told investors that it still has more than $1 billion in excess capital available for “market opportunities” that may arise.
“We're really looking for how to use our excess capital in the most effective way to generate, not only to be accretive but to get the right returns on equity as we make the investments,” said Co-CEO Carl Lindner III.
Payment processing company Vantiv Inc. told investors n a Feb. 13 earnings call that it’s also on the lookout for acquisitions.
“International expansion is really still on our roadmap for growth,” said CEO Charles Drucker. “Our expansion into international is really going to be opportunistic, such as an acquisition or partnership. So, we're starting to explore that.”
In the meantime, deals are being announced almost daily. For example:
- Sabin Paper Acquisition LLC announced Feb. 19 that it purchased the assets and trade liabilities of the Sabin Robbins paper company. The group is led by paper industry veterans who will operate the West Chester company under a new name, Sabin Robbins Converting Company.
- The Kroger Co. announced Feb. 11 that it will buy YOU Technology LLC, a Silicon Valley –based digital coupon company. Terms of the deal were not announced. It’s aimed at expanding Kroger’s capabilities in distributing coupons via smart phones.
- WCPO’s parent company, E.W. Scripps Co., announced a $100 million acquisition Feb. 10. The Cincinnati-based
- media company is purchasing TV stations in Detroit and Buffalo from Granite Broadcasting Corp.
- Multi-Color Corp. acquired the Di-Na-Cal labels business from Graphic Packaging International Inc. on Feb. 3, adding $64 million in new revenue and manufacturing facilities in Cincinnati and Greensboro, N.C.
- Milacron LLC acquired a pair of manufacturing companies in Texas, expanding its ability to service the machines it is already selling to customers and adding new customers in several southern states. Industrial Machine Sales Inc. and Precise Plastics Machinery were the companies acquired. The deals were announced Feb. 7.
- Mason-based private equity investor C.M. Paula Co. announced its latest acquisition Feb. 7, purchasing West Chester –based robotics company, Remtec Automation.
- CTI Clinical Trial and Consulting Services of Blue Ash announced the acquisition Jan. 30 of Community Research, adding three locations where it can conduct clinical trials.
- Pure Romance LLC acquired one of its rivals, Slumber Parties, in a deal announced Jan. 17. The deal brings 3,000 new sales consultants and a larger presence in 11 “key markets” including Las Vegas, Atlanta and Washington, D.C.
While the year started strong, some question whether the buying binge will continue. Uncertainties about the global economy could cause buyers to have second thoughts. Sellers could find it hard to pull the trigger because they’ve endured the recession and their business prospects are finally looking up.
Hayden, whose Frost Brown Todd clients range from startups to multinational corporations, said he has encountered this uncertainty among local entrepreneurs.
“The multiples are high in terms of deal pricing but at the same time, the business is doing well enough that they’re saying, ‘Why would I want to sell even at a high multiple if I’m doing really well in my business? What am I going to do next? Where can I invest those proceeds and do as well as I’m doing now? Is it going to be something where I know the risk like I know it in my business?'”
What Cincinnati companies have the most cash on hand?