The mergers and acquisitions (M&A) market resembles a badly cooked hamburger: cold in parts, red hot in others. The hot parts, though, are really scorching—at least, judging by two recent transatlantic bids.
Expro International Group Plc., a UK oil services group, got a takeover proposal from Halliburton Co. of the US worth £1.7 billion (Rs14,331 crore) in cash. Expro’s board has already recommended an offer from Goldman Sachs Group Inc., Candover Investments Plc. and Alpinvest Holding NV of £1.6 billion.
Meanwhile Enodis Plc., a UK maker of catering equipment, recommended a £1.1 billion offer from Manitowoc Co. Inc. of the US on Monday. Manitowoc trumped a recommended offer from Illinois Tool Works Inc., which had in turn trumped Manitowoc’s initial recommended offer.
The two industrial groups, have received dizzyingly high cash premiums, 65% and 100%, respectively, above their pre-bid prices, from US buyers. And both have potential counter-bidders, so the price could get even hotter. What’s remarkable isn’t just the bidders’ generosity, but their persistence. Halliburton made its £1.7 billion conditional offer for Expro after a firm bid from Goldman Sachs and Candover. Meanwhile Manitowoc’s £1.1 billion bid for Enodis, which makes deep-fat fryers for the likes of McDonald’s, was the US suitor’s second offer, and the third Enodis’ board has backed since April.
Does this signal a new outbreak of feverish auctions? Not necessarily. Enodis and Expro both have unique charms. Enodis is the world leader in its grease-stained field. Expro, whose products help oil majors wring more from their wells, is partly a play on the long-term cash flows of the oil industry.
As for the transatlantic slant, Expro and Enodis are heavily geared to the US dollar already, which minimizes currency risks for a US buyer. It’s a far cry from the debt-fuelled auctions that inflated the prices of Alliance Boots Plc., EMI Group Ltd and Corus Group Plc. during the last M&A boom.
Indeed, this burst of activity doesn’t give M&A bankers much to cheer about. Deal values for 2008 are still likely to be just two-thirds of last year’s total, according to a Citigroup Inc. analysis. And small transactions by trade buyers often continue after big, debt-laden takeovers have dried up, making them a lagging indicator. Still, there’s room for a fierce auction.