Bob Greenhill The Buying Game

Looking back on two decades in the M&A business, Bob Greenhill told Handelsblatt about what German investors think about stock in the United States – and the growing appeal of Germany's mid-sized companies to American investors.
The M&A master of Wall Street talks change.

Born in 1936, Robert Greenhill, known as Bob, is one of Wall Street's legendary dealmakers. Nineteen years ago, he was ousted from his position as CEO at brokers Smith Barney and set up his own consulting company. Today, the Greenhill investment bank has 320 employees and 15 offices on five continents. On a recent trip to Germany, Mr. Greenhill sat down with Handelsblatt to share his thoughts on how the takeover business had changed, the importance of cash and the possible impact of Greece leaving the euro zone.

 

Handelsblatt: Canada's PotashCorp is currently trying to take over Germany's K+S – though it isn't yet clear whether the bid is friendly or not. Do you think the deal will work out, looking back on your years of experience? 

Bob Greenhill: What I've learned is that all hostile takeovers become friendly in the end.

How big are the chances of the deal succeeding?

It all depends on the premium that they’re prepared to pay. In this day and age, most directors are pretty responsible toward the shareholders. I think 20 years ago it was more difficult, and directors took a more paternalistic attitude towards their companies. As time has passed, economics really carry the weight. It depends on the attractiveness of the offer.

The first offer often isn't the last. 

That’s true sometimes. It depends on the competition, the number of bidders and what kind of synergies there are between the two companies – how much overlap there is in the business. Potash is a pretty concentrated business worldwide.

Hostile bids are unusual in Germany, should we get used to them?

It’s a question of how you define hostile, but in terms of people presenting a company with a price, yes, there are going to be more. I think your securities laws will be more along the lines of the U.S. which is very open to shareholders receiving premiums.

Is this deal a sign that we're at the end of a cycle of M&A?

The M&A boom almost came to a standstill in 2008-2009. They were terrible years, nothing was happening. What we're seeing now is as companies have repaired their balance sheets, they’ve been pretty cautious. They have share buybacks and dividends but now they have enough liquidity so they’re doing acquisitions close to home, pretty close to their basic business.

Do you expect to see more mergers involving DAX companies?

Not necessarily. You have to talk individually about particular companies. Some yes, but most no.

Why not?

In many companies you have controlling interests or you have families who are long-time shareholders, like BMW, that are reluctant to sell.

So why are foreign investors interested?

We just did this transaction for Alcoa with a German company, Tital, which specializes in titanium in the aerospace industry. It was a very attractive company, one of these hidden champions. It fitted perfectly with Alcoa.

Do you expect to see more purchases from Germany's Mittelstand, the mid-sized companies that make up the backbone of the economy?

Yes, I think so. But I always tell the buyers in the U.S. that it takes time. It took about a year for Tital but it happened. They’ve got to come to trust you.

Can you give us an idea of how many transactions we might expect to see?

That depends on how you define Mittelstand, but among the so-called hidden champions I’d say there’s a handful now. Will there be more? Yes. But it’s also happening the other way around. We have a number of big Mittelstand companies that are doing very large deals in the U.S.

You already explained a bit about the reasons for the takeovers you’re seeing in the United States. Germany's economy is also improving. There are some very attractive companies here, but the level of M&A activity has been disappointing in the past. Do you think that’s going to change?

Yes I do. It’ll happen gradually, this year or in 2016.

But not in a wave?

We have a lot of transactions in the office looking at German companies buying U.S. companies.

Is that partly because of the low cost of financing?

Yes, the cost of financing is cheap and the return that you get compared to the cost is attractive.

Are there a lot of companies from North America looking to Germany?

Yes. Some, in particular situations. Tital, the company we looked at for Alcoa, was a very high quality company in the titanium business.

Will we see more mega deals ahead?

Yes, in some industries. Pharma is a good industry where you have transformative deals. It’s because of the discovery of important new drugs by small companies that can’t afford to develop them through to worldwide distribution so they have to partner with a company.

In Germany, we are impressed by the deals done by Google and Facebook – the whole Internet space. Is that overheating?

We’ll know in twelve months or so. Remember what happened before, in 2002, when the bubble ended...

Do you think we might be at the beginning of a new financial crisis?

No, I don’t. The banks are more capitalized, the industrial companies have been careful to buy things that are closer to their basic business. You’re not going to see another AOL Time Warner deal, people are pretty cautious.

Will the Fed start raising interest rates – and could that cause problems?

I think come the fall, we’ll see some moves. But I don’t think the Fed will act in a way that disturbs the markets. It's going to be pretty cautious but I think it will begin to raise rates. I think the industry is strong enough.

Do you think there could be problems from a possible Grexit?

I don’t think so but I don’t know what the effect of a Greek exit would be because most of the companies we do business with wouldn’t be too much affected by that.

You have so much experience in your profession, what has changed in the M&A business in the last 20 years?

One of the things that’s changed is the M&A business is part of the normal business cycle, companies do normal organic growth, and they do inorganic growth, which are acquisitions. Now management weighs these things more seriously. Things were different 20 years ago, you'd find a company and have to have it, cost it what it may. Integration of the companies is a challenge that can't be underestimated.

Let’s talk about Greenhill. Is competition getting harder for M&A boutiques?

The hardest thing when you start a boutique is to maintain a culture geographically. In today’s world you have to be in global financial centers to do effective M&A business – so you have to cross boundaries. We are 100-percent owned, we don’t have any subsidiaries, and that’s a way to have a common culture. In this business, culture is more important than almost anything. We now have 15 offices in 5 continents. Years ago, when I started, I had a secretary and a driver, that’s all there was. Now we have 320 people and we're growing all the time.

Would you start an M&A boutique again today?

Probably. I’m pigheaded. When I started I had no master plan. The first transaction I worked on, with Genetics Institute, I didn’t know the company. They read about me in the newspaper and called up and we were successful and transactions started happening. And people started leaving the big conglomerate banks, wanting to be in an advisory culture.

Is that happening again today?

Yes. I think most people you would respect as very effective M&A practitioners don’t want to be in a big conglomerate bank. One of the reasons is conflict of interest. If you come to a big bank and you have a proposition, it’s very hard to keep it confidential.

You’re 79, are you thinking about retiring?

I should have retired a long time ago but as long as my health permits and my judgment has value to the clients – I enjoy what I do. I’ve been lucky.

 

Robert Landgraf is deputy head of Handelsblatt's finance section, Peter Köhler heads Handelsblatt's banking team in Frankfurt. To contact the authors:  [email protected], [email protected]