The past few years have been spent sorting out the deals of the 1990s and, in retrospect, they were a hugely expensive way of acquiring target assets that may account for only 30% of the total purchase. Often managements then spent a year integrating the desired part and selling off the rest.
A better solution may be to swap physical assets, trading a division you don’t want for one that you do in a kind of corporate barter. This may involve three or four parties trading to get the target assets to their rightful home.
Michael Kirkwood, Citigroup’s country officer for the UK, spends a lot of time talking to the bosses of FTSE100 companies and thinks this trend may emerge in the next few months. “It makes far more sense, the company doesn’t have the financing risk and it’s easier to make sure you don’t overpay,” he says.
For M&A bankers who are dreaming of their names going down in corporate history, this trend is disappointing. Sifting through portfolios to find a swap between polymers and widgets is not as glamourous as broking a mega-merger. But any future fallout will be a lot less severe – always a consideration in these times of recriminations.
