On Monday afternoon, Black & Decker Corp. announced it would merge with The Stanley Works in a $4.5 billion dollar deal that will bring together two of the world’s largest tool makers.
The merger made big news in the business pages, but according to Ken Moelis, W’81, WG’81, the Black & Decker-Stanley deal is nothing more than a sign of things to come. Moelis, CEO of the Moelis & Company and one of the world’s most influential investment bankers, says the business world is about to enter a period of heavy M&A activity.
More big deals, he says, are on the way.
“I think it’s going to be an unbelievable time for M&A,” said Moelis, who guest-lectured in Wharton Professor Pavel Savor’s Finance of Buyouts and Acquisitions course on Tuesday. “Companies are going to need to start taking costs out.”
Since the market collapsed last fall, most companies have already done pretty much all they can do to cut costs. But because the economy has not appreciably improved—“From what I’ve seen the general pace of business has just flat-lined,” Moelis said. “Among the businesses we talk to, they’re not seeing top-line increases.”—CEOs and boards are going to have to at least consider their last available option: Merging with the competition.
The Black & Decker-Stanley deal is a good example of just that, Moelis said.
“Now, I’m not a tool guy, and I’m not a handy guy,” Moelis joked, “but it seems to me those companies make the same thing. It looks like they have the same distribution, the same manufacturing, the same inputs, the same sales force. So why not bring them together?”
Of course, the same deal probably made sense years ago, Moelis said. But it happened now precisely because of the challenging climate.
He expects other companies to follow suit.
“Why not five years ago?” Moelis said. “Well, CEOs like running their own companies. It’s fun. But when things get hard, boards and CEOs—they don’t want to fail. When you hit that points where people start saying, ‘You know, we’re not going to hit next year’s numbers, and I’m not going to be able to keep my job,’ they start thinking, ‘Well, here’s an obvious plan—one plus one and we’ll survive.’ I think you’re seeing this in the pharmaceutical mergers, in the Black & Decker deal, and I think you’ll see it over and over again. There are obvious mergers out there than can take out huge amounts of costs.”