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ADI - Analog Devices Inc News Story

$148.88 4.4  3.0%

Last Trade - 05/03/21

Sector
Technology
Size
Large Cap
Market Cap £39.68bn
Enterprise Value £42.64bn
Revenue £4.23bn
Position in Universe 213th / 6651

FOCUS-Manufacturers hunt for deals amid pandemic wreckage

Thu 10th December, 2020 11:00am
By Timothy Aeppel
    Dec 10 (Reuters) - The COVID-19 pandemic has been a disaster
for many U.S. manufacturers, but it is also creating acquisition
opportunities.
    Cary Wood, chief executive of Grede Holdings LLC, saw
business plunge 90% earlier this year as the auto plants and
heavy equipment producers that use his metal parts shut down,
followed by a bumpy recovery. But he's upbeat these days and, in
the last two months, he's opened negotiations aimed at acquiring
seven smaller foundries.
    "I can wait out the cycle," Wood said, "but many of these
guys can't."
    Grede, carved out of publicly traded American Axle &
Manufacturing Holdings Inc  AXL.N  last year, is backed by a
private equity firm and was already hunting for acquisitions
before the crisis hit. But Wood said the rate of deal talks is
far higher than a year ago, when he was running the foundry
company that merged with Grede as part of the buyout. And it is
similar to a wave of restructuring he saw just after the
2008-2009 financial crisis.
    A similar story is playing out across the U.S. economy. 
    A recent survey of leaders of companies with over $250
million in sales found 65% of manufacturers said they planned to
make acquisitions in response to economic conditions created by
the pandemic. Other sectors show a similar push for
acquisitions, though not to the same degree. Only 36% of
consumer goods companies said they were looking for
acquisitions, while 41% of health care companies said they were
on the hunt.
    "The first impact of COVID on manufacturers was to make them
defensive - they all sought to conserve capital and find ways to
continue operations," said Scott Fuzer, a mergers and
acquisitions expert at West Monroe, the business consulting firm
that conducted the survey. "But now," he said, the stronger
companies "are going on the offensive."
    Fuzer said many smaller manufacturers are "just holding on -
especially family businesses - where the family is already on
the edge of wanting to get out of the business."
    U.S. merger activity jumped nearly 36% in the third quarter,
according to data compiled by Refinitiv, to 3,296 deals, after a
slump during the early months of the pandemic. Many of the
biggest deals have been in the technology sector, but old-line
industrials are in the game, too.
    Ingersoll Rand Inc  IR.N , for instance, announced a $184
million deal this week to buy a vacuum pump and blower systems
maker.  urn:newsml:reuters.com:*:nBw94GzpVa And United States Steel Corp  X.N  plans to
take full ownership of Big River Steel for $774 million.
 urn:newsml:reuters.com:*:nBw6QP7jLa
    
    MOTIVATORS: SUPPLY CHAINS, TAXES, 'BUYER'S MARKET'
    One reason U.S. manufacturers are active is the fragmented
nature of their supply chains. While the sector is dominated by
large producers, smaller companies often continue to supply the
parts those factories use to build finished goods.
    The foundry industry is a good example of this. In 1980,
there were 4,800 U.S. foundries and, even after waves of
shutdowns and consolidations, just under 2,000 remain, the bulk
of them small outfits often with just one operation serving a
few targeted industries. 
    With an uneven recovery, many are struggling to survive. The
lucky ones are in sectors that have snapped back quicker than
others. The auto sector, particularly truck producers, have
thrived, for instance, while many industrial equipment and
off-road machinery companies remain depressed.
    Grede, based in Southfield, Michigan, was formed in December
2019, when Gamut Capital Management bought nine foundries and
two related processing plants from American Axle for $245
million. Owning that many foundries makes Grede one of the
industry's larger players. Even before the pandemic, it was
planning to grow through acquisitions. The crisis accelerated
that process, Wood said.
    Last month's presidential election is also a factor for some
companies, he said, noting that one of the companies he's
talking to is family owned and is concerned about potential tax
changes under Democrat Joe Biden's incoming administration.
    "There's some concern about what a wealth tax might mean for
private owners," he said.
    The economic downturn also means some companies can be
bought at lower prices. 
    Austin Ramirez, chief executive of Husco International Inc,
said he's looking "at a couple of small to medium-sized
acquisitions" that would help his business - which makes parts
for cars and off-road machinery - expand into new product lines.
Ramirez said the crisis has helped "compress" prices.
    "We would have looked at these things anyway," he said, "but
it's more of a buyer's market."
    That said, it still isn't easy to make deals. "There's an
awful lot of capital out there - both from strategic acquirers
like us, and financial buyers," said Ramirez.
    And some manufacturing sectors have thrived during the
pandemic, which means valuations remain high in those
businesses. 
    Sanjay Singh, executive chairman of Mace Security
International Inc  MACE.PK , the makers of the well-known pepper
spray, said his business has surged "because of COVID and the
social climate - people are looking for safety." That means
valuations are up, he said, but he's still looking for
opportunities to expand now.

 (Reporting by Timothy Aeppel; editing by Dan Burns and Edward
Tobin)
 ((Tim.Aeppel@thomsonreuters.com;))
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