UniCredit, under the leadership of CEO Andrea Orcel, maintains a cautious stance towards potential acquisitions, setting high standards for any deals to ensure they align with the bank’s strategic goals.
Speaking at the Morgan Stanley investor conference in London, Orcel expressed his belief in the importance of mergers and acquisitions (M&A) for business growth, provided they come at the right price.
He stated, “My view is that at some point you need to build the business, so M&A at the right price is better (than distribution).”
However, Orcel also highlighted the dilemma faced by UniCredit in the absence of suitable M&A opportunities.
The bank would be compelled to significantly increase its capital distribution to shareholders, through a mix of share buybacks and cash dividends.
This would necessitate adding between 1.5 to 2.0 billion euros annually to its ordinary capital distribution, already one of the highest in Europe.
“If you ask me I’d be disappointed to be there because it means I haven’t found profitable ways to invest in the business, and most probably it will be a balance of the two,” Orcel remarked.
The CEO further elaborated on the challenges of pursuing acquisitions in the current economic environment, where the high cost of equity makes it difficult for UniCredit to lower its standards, even for strategically fitting assets.
Orcel emphasized the need for any potential acquisition to not only be strategic but also to guarantee a minimum risk-adjusted internal rate of return of 15%.
He explained, “Even when an asset is strategic, the market needs to have full confidence in the cost benefits of any deal and the risk-adjusted internal rate of return must be at least 15%.”
UniCredit’s disciplined approach to acquisitions has led to widespread speculation and “a lot of noise” in the market.
Orcel addressed this by stating, “We’ve looked at a lot of things.
“Because we look at a lot of things there is a lot of noise, but noise should also indicate to you that unless we hit what we want to hit … [we won’t act] and … people waiting for that speculative move are going to be disappointed.”
This statement underscores the bank’s commitment to its strategic criteria and its determination to pursue only those opportunities that meet its rigorous investment standards.