Some companies are hungry to grow
There was plenty of applause on Wall Street today for the news that air-conditioner company Trane sold for a cool $10 billion to Ingersoll Rand. Companies flush with cash are stepping in to keep the economy moving. Jill Barshay reports.
Ingersoll Rand and Trane logos (Ingersoll Rand, Trane)
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KAI RYSSDAL: Let's get back to that Ingersoll Rand deal we started with for a minute. Economists like to use buyout activity to help measure growth. It's one gauge among many, to be sure. But deal-watchers have been as spooked as anybody by the credit crunch. Which is why today's news is raising hopes. Not a dime of the $10 billion that Ingersoll's going to spend came from private equity. Those firms have financed most of the buyouts that've happened so far this year. But now, companies with cash in-hand are paying for their own deals. From New York, Marketplace's Jill Barshay reports
JILL BARSHAY: Private equity firms were almost this year's buyout kings. They raised tons of cash in the debt markets and outbid everyone else to take over businesses. Steve Miller is a managing director at Standard & Poor's Leveraged Commentary and Data. He says the August credit crunch stopped that merry-go-round.
STEVE MILLER: It's been much harder for private-equity firms to source and finance deals, but it has created an opportunity for corporate buyers.
Miller says companies are hungry to grow. They've been stockpiling cash after years of double-digit earnings. And they can use their stock shares as money.
Greg Feinstein is one of the heads of mergers and acquisitions at Houlihan Lokey. Feinstein says his investment bank is involved in 180 buyouts now.
GREG FEINSTEIN: It is a shift from leveraged buy-out firms that are buying it as a purely financial transaction into operating companies who are acquiring it because it's an expansion of what they're doing.
Feinstein says all this new M&A activity shows not all business leaders are worried about a recession.
Feinstein: If a CEO is worried about the economy, he won't expand. He won't spend money. ... So having a high level of certainty and confidence about the future is really the most important thing for M&A.
Feinstein doesn't expect companies to buy as much or as quickly as the private-equity guys did. But both he and Miller predict we'll see some big-ticket purchases in 2008.
In New York, I'm Jill Barshay for Marketplace.
