Cost-cutting helps global cos build warchest for M&As

Bolstered by cost-cutting measures that helped them amass deep warchests, many companies are again embarking on the acquisition trail, with deals worth nearly $20 billion announced in just the last two weeks worldwide.

Contrary to the last two years, where the focus was on trimming expenses to tide over bearish market conditions, corporates worldwide are loosening their purse strings for inorganic expansion.

Big-ticket deals worth close to $20 billion have been announced in the past two weeks, including the $4.9-billion Aon-Hewitt merger, Japanese firm NTT's take over of South African IT firm Dimension Data for $3.2 billion, and Reckitt Benckiser buying out the England-based Durex condom maker SSL for $3.91 billion.

Experts believe many of the potential acquirers have built warchests through improved earnings by virtue of operational efficiencies and sale of non-core assets.

"While the slowdown in the US and Europe has not ceased, large global corporations in last two years have actually become stronger having saved cash through optimising costs and improving efficiencies and also through of sale of non-core businesses. Many of these global firms are better placed than ever before," global consultancy KPMG Executive Director Vikram Hosangady told PTI.

Reversing a trend of decreasing volumes over the past two years, global cross border M&A volume rose 55 per cent to $461 billion till July 21, compared to the year-ago period, according to the data compiled by global deal tracking firm Dealogic.

Interestingly, most of the M&As are being led by companies from countries like the US and Japan -- Reckitt-SSL International, the Aon-Hewitt merger deal and NTT-Dimension Data takeover transactions, among others.

"As to the deal activity in the developed markets, it is clearly a consolidation game and one must remember valuations in these markets are way below what one pays for in Indian and other emerging markets," Hosangady added.

On July 15, the Canada Pension Plan Investment Board had made a takeover bid of $4.4 billion for Australia's Intoll Group.

Another multi-billion dollar deal in the past week was by General Motors, which would acquire finance company AmeriCredit Corp for $3.5 billion to boost the car maker's retail financing options for customers.