Rebuffed VC predators more willing to go hostile

LONDON (Reuters) - Private equity firms rebuffed by companies they attempt to buy are increasingly likely to launch more aggressive hostile approaches for their targets, a leading merger and acquisition adviser said on Tuesday.

Paulo Pereira, a partner at boutique investment bank Perella Weinberg Partners, said at the Reuters Investment Banking Summit in London that private equity bidders would be more willing to go straight to shareholders if they felt a target had not adequately received their approach.

"The preference will continue to be for friendly transactions, but I think in the current market environment unsolicited approaches that are rebuffed by management or boards not on the merits of the transaction are much more likely to go hostile," Pereira said.

He said private equity firms have been reluctant to go over the heads of boards and management partly due to the fact it is harder for them to raise the financing necessary for an offer if they cannot conduct due diligence on a target.

Private equity buyouts have helped fuel buoyant merger and acquisition activity in Europe this year. Almost all the deals have been on a friendly basis, but hostile moves aren't unprecedented.

Private equity firms Apax and Nordic Capital succeeded with a $2.3 billion bid for Swedish healthcare company Capio CAP.ST last month despite initially being turned away.

In an unusual move the firms took their bid hostile. Capio's board agreed when the offer was raised.

CVC Capital Partners, a UK buyout house, is making a hostile offer along with Norwegian packager Elopak for Switzerland's SIG

SIGN.S.

Pereira said he expected private equity deals to continue to get bigger.

Several buyout firms banded together in July to bid $21 billion for U.S. hospital chain HCA HCA.N in the second-biggest buyout deal ever, excluding HCA's debt.

"There's little doubt that, absent a shock, that will be topped in this cycle," said Pereira.

He added there was also likely to be an increase in the amount of stock used in mergers and takeovers as the cycle moves on, more mergers of equals emerge and stock markets remain high.

"In a typical (M&A) cycle you start with cash-based deals, and toward the end of the cycle you see a lot more share-based mergers", as stock values rise and it becomes a more feasible way to pay, he said.

He added that among sectors ripe to take part in crossborder mergers are the financial institution group, which includes banks and insurers and the healthcare sector, as well as energy and power companies.