Channel buyouts to slow in first half

Siemens' Peter Austin says agility will be key to a successful 2009

Channel consolidation is expected to slow in the first half of 2009 as companies seek to conserve their funds while potential takeover targets hold on for better times.

Peter Austin, general manager at Siemens Financial Services, said channel fortunes will likely follow those of the City, where financial caution is tipped to restrict the temptation for some companies to go bargain hunting.

“That will push on out for the whole first half of next year,” Austin said. “The City is on its knees and it is really not going to get any better until later in 2009 or even 2010.”

Companies that may be flash with the cash at normal times may hold off making acquisitions even if the price looks good. Meanwhile, companies hoping to be rescued by a takeover bid may withdraw the ‘For Sale’ signs until times improve.

“Resellers that are thinking of selling their business, if things had stayed as they were, may hold out,” Austin said. “Maybe for several more years.”

He said the biggest economic issue is uncertainty. While many believe partial recovery may happen by mid-2009, others fear a worst-case scenario as bad as the 1930s Great Depression.

“The channel will be part of the trend,” Austin said. “So, generally, it is going to be about sticking to your knitting. And the fleet of foot – rather than the most innovative – are likely to do best.”

Austin’s comments tally with recent reports in the Financial Times suggesting that corporate financiers generally are expecting a much slower pace of acquisitive activity after a half-decade boom in buyouts.

Until September, many bankers believed that some acquisitive companies would take advantage of plummeting share valuations to score bargains.

However, once US investment banking giant Lehman Brothers collapsed in September, it was revealed that a record number of buyouts were cancelled in 2008.

Merrill Lynch, though, expects the “right deals” to get done in 2009 due to the dramatic cross-industry dislocation expected, according to the Financial Times.

Paul Parker, global head of M&A at Barclays, expects to see about $2,000bn in global deal volume next year, which would put levels roughly on par with those in 2004 – three years after the collapse of the dotcom boom, the newspaper reported.

“We’re going to have a slow first half, but with some big, chunky deals as people can be opportunistic. History is on the side of the companies that buy at the bottom,” Parker was quoted as saying.