The return of the industrial buyer
By Juha-Pekka Raeste
Last Wednesday the Ingman family announced that it was selling the dairy company Ingman Foods to the Danish Arla. The following day the Sampo Group said that it would sell its banking operations to the Danish Danske Bank. On Friday, HK Ruokatalo said that it had bought Swedish Meats.
The buyers were not a capital investors in these corporate deals, as has been the case in many transactions in recent times.
Why is this?
The answer lies primarily in the fields of operations of the companies.
In the cases of Sampo and Ingman, the buyers were genuine large European companies. Giants such as Danske Bank and Arla can implement their European enlargement strategies by offering high prices without jeopardising their solvency.
Danske Bank's balance sheet shows that it is 14 times bigger than Sampo Bank.
A good bank will often sell for twice its paper value (assets minus debt). However, Sampo Bank went for 3.5 times its paper value.
The price partly indicates that buying Sampo was a long-term strategic acquisition for Danske Bank.
Banks are capital-intense by nature, and are bound by factors such as the solvency rules of the Bank for International Settlements (BIS).
Capital investment companies seek to finance their purchases in such a way that the company that is being bought is pumped full of debt. As a result, solvency rules alone make capital investors avoid banks.
In the cases of Ingman and HK Ruokatalo, the major factor was that they operate in fields that have not been of much interest to capital investors.
Meat processing and dairy operations are difficult from a capital investor's point of view, as they tend to develop slowly, and cannot be easily unloaded in a period of five years.
Developing activities in these fields are long-term operations, in which local cooperative dairies and slaughterhouses nave to be turned into more efficient units.
"In the past three years consultants have been running around proposing various kinds of corporate mergers", says one capital investor who wants to remain anonymous.
Nevertheless, capital investors have not jumped on the efficiency bandwagon in the meat processing industry. "It is just so difficult. One needs knowledge of the field, and there is tremendous excess capacity in slaughterhouses in Finland."
Dairy companies share the predicament of the slaughterhouses. They were once built with the interests of local producers in mind - not those of industrial efficiency.
The excess capacity is being gradually dismantled, but the changes require an engine that revitalises the field. Small companies are not up to the task.
This is why it was profitable for Finland's second-largest meat producer, HK Ruokatalo (rather than a capital investor), to buy the ailing Swedish Meats.
"The purchase by HK Ruokatalo was expensive in terms of to the result coefficient, but cheap, from the point of view of the turnover coefficient. The price was low if the efficiency of the company is brought even to the average European level", ponders a shareholder of a large capital investment company.
Helsingin Sanomat / First published in print 15.11.2006
More on this subject:
 Record number of corporate deals in Europe this year
JUHA-PEKKA RAESTE / Helsingin Sanomat
juha-pekka.raeste@hs.fi
|
|
