The chief executives of 3M Co. and Honeywell International Inc. on Wednesday said the grim global economic outlook is whetting their appetite for acquisitions.
When organic growth opportunities slow, major U.S. companies typically turn to buying other businesses as a way of quickly boosting their revenue. The slowdown is making it easier to do so by lowering sellers' price expectations, executives said.
Honeywell CEO Dave Cote suggested that the uncertain economy has led some potential takeover targets to entertain lower-priced offers from his Morris Township, New Jersey-based company.
"When times are bad and everybody is uncertain about the future, that is the right time to buy," Cote told an investor conference in Boston. "You don't want to buy when everybody is saying, 'Wow, things are great, this is a good time to do it,' because you're probably catching things on the peak."
Inge Thulin, who took over as CEO of 3M in February, said told investors that sellers' price expectations had declined and he was likely to pursue larger acquisitions than his predecessor George Buckley. He held to the company's target of doing $1 billion to $2 billion worth of takeovers per year.
"You will see fewer but more strategically important" deals, said Thulin, whose company makes a broad range of products from Post-It notes to films used in television screens. "They should be a little bit more sizable."
The company has not given up on its effort to acquire Avery-Dennsion Corp's office products businesses, despite U.S. antitrust objections, 3M executives added.
Similarly, the head of auto parts supplier American Axle and Manufacturing Holdings Inc said the weak European auto market -- where industry sales were down 8.5 percent in August -- could give his company an opportunity to buy distressed companies with interesting new technologies in Europe.
"If there's a way to expand our presence in Europe that strengthens our brand, we'll do it," said David Dauch, the company's CEO, at Detroit Economic Club.
GRIM GLOBAL ECONOMY
Europe's continued slump and weakening demand in Asia stood out as the main concern on executives' minds.
Thulin said 3M's long-standing goal of growing sales by 7.0 percent to 8.0 percent a year, factoring out the effects of acquisitions and currency fluctuations, looked like a "stretch target" in the current economy.
"The market has changed since that target was put in place. It was done in a different economic environment," Thulin said. "Now it's a stretch target in a way and in 3M we have an organization that responds very well to stretches."
Honeywell's Cote said that in recent months the global economy had grown slightly weaker, though the maker of building-control systems and cockpit electronics has not seen any sharp changes in demand.
"This is more of a steady degradation," Cote said.
Honeywell believes the company will continue to grow sales despite the overall sluggishness, Cote told investors. "Next year, I think sales will generally be up, but it's not going to be anything that's exciting."
Investors have grown warier of companies' prospects in the past few months, with firms in the widely watched Standard & Poor's 500 index now expected to post a 2.1 percent collective profit decline in the third quarter. That is down from forecasts that called for 3.1 percent growth when the calendar quarter began on July 1, according to Thomson Reuters I/B/E/S.
The view is not quite so dark for Thulin and Cote's sector. Analysts look for industrial companies to record 4.7 percent earnings growth in the quarter, though that is down from an earlier 10.1 percent growth forecast.
EUROPE IS THE BIG WORRY
Europe, gripped in a debt crisis, remains corporate America's main worry, executives said.
"The European market is mixed. Northern Europe continues to be robust ... southern Europe clearly is depressed and a whole different story," Carlos Cardoso, CEO of U.S. tool and engineering company Kennametal Inc, told an investor meeting in New York.
That weakness has hurt the Latrobe, Pennsylvania-based company's sales, Cardoso told investors in New York.
"The first quarter is coming slightly below what we expected," he noted. Analysts had expected sales to rise about 5.5 percent in the company's first fiscal quarter, which ends Sept. 30.
Cardoso said the uncertain economy has made it more urgent for his company to close deals on businesses that want to sell.
"We have to be prepared to make the acquisitions if they come together," Cardoso said. "If we're not prepared, they go to someone else."
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