A number of companies have said to us recently that they are ‘pausing for breath’ after surviving one of the toughest periods they have known.  But this could be a dangerous strategy for two reasons. First, growth opportunities may come and go leaving them behind and second they could become someone else’s growth opportunity.

Those companies with strong ‘cash-rich’ balance sheets need to carry on making them work. For example, Microsoft is currently borrowing money at a rate of less than 1% to fund its share buyback programme. Meanwhile, today (27/09/2010), Unilever announced the £2.3 billion acquisition of US hair products group Alberto Culver (VO5 and Tresemme) as they look to diversify away from the slow growth of the European food market to the greater potential of personal care.  We expect to see other companies adding similar ‘bolt-on’ acquisitions as they look to fill gaps in their product range that offer greater growth potential.

What this also means is that those companies that remain proactive and focused on business development can pick-up good quality businesses at attractive prices.

Alternatively, companies can make efficient use of their balance sheets to increase dividends, which will also be a big positive for value in the minds of shareholders.  As such, we continue to work closely with company managements giving them the benefit of our experience as input to their development plans.

In the current environment it is important to look at potential investment opportunities from the perspective of different potential purchasers, each of whom looks for different attributes. This means that we assess companies from a private equity perspective, a trade purchase perspective as well as a long-term strategic perspective.

So, the worst thing that any company can do is take a pause for breath!