A very attractive company.

Merchant merger mania

Published:  25 January, 2010

LONDON: The UK housebuilding sector is ripe for consolidation with merchants likely targets for a renewed bout of acquisition and merger activity, City analysts said.

They cite Travis Perkins as an attractive target for European companies such as French multinationals Lafarge and Saint-Gobain. Other UK building sector companies vulnerable to takeover are Bellway, Bovis and Redrow.

Kraft's takeover of Cadbury shows that in Britain there are no 'sacred cows' or a protectionist government to block deals, as is a risk elsewhere in Europe.

David Lis, head of UK equities at Aviva Investors, said that while sterling's weakness will help to drive mergers and acquisitions, so too will subdued economic growth, which makes it difficult for companies to increase profits.

"One solution is to acquire one of your rivals, so that instead of growing at 1% or 2% a year, you are able to move ahead by 8% or even 10%," he said.

Mark Richards, analyst at Credit Suisse, said: "Credit markets have reopened and corporate bond yields have fallen making debt finance more affordable. Meanwhile, since costs have been cut during the downturn, many companies are relatively cash-rich.

"This means that the gap between cashflow yields and financing costs is probably the most attractive it has been for 50 years."

British companies could be particularly attractive targets because the relatively weak pound. One analyst said: "Sterling makes UK companies look cheap, particularly as many are global businesses that are just based here."

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