SKF’s CEO Rejects Blockbuster M&A for High-Stakes Restructuring

(Bloomberg) -- The chief executive officer of SKF AB has dismissed the idea that a transformational acquisition is needed for the world’s biggest bearings maker to double sales by 2030. 

Rickard Gustafson, 57, will instead put his energies into “getting a new organizational structure up and running” at the 115-year-old Swedish group that still counts the influential Wallenberg family as its largest shareholder.

“My mind is not much set on M&A, rather I’m focused on supporting our customers and achieving some momentum for our strategic framework,” Gustafson said in an interview in Stockholm. 

The company, whose bearings and seals are used to reduce friction in industrial sectors across the global economy, revealed a new strategy last week that will see operations decentralized while also boosting budgets for digital supply chains and research and development.

But the targets, along with disappointing fourth quarter results, failed to convince stock investors and SKF shares suffered their biggest daily drop in nearly two years. 

Read More: SKF Plummets on 4Q; Jefferies Sees Cost Inflation Digging In

SKF’s “implied annual growth for the next nine years is 8% and for the past decade it was 1 to 2%,” said Bloomberg Intelligence analyst Mustafa Okur. “That’s a massive gulf to bridge.”

In response to the negative market reaction, Gustafson said he will “let the results speak for themselves but of course it’s up to us to demonstrate we can deliver on this.”

To do that, the CEO wants to make room for investments by making the organization more cost efficient, for example by “reducing corporate overheads,” and streamlined by focusing on fast-growth trends like clean tech and electrification.

Still, questions over the strategy continue to linger, especially when most large-cap industrial peers in Sweden have concluded or announced multi-billion dollar acquisitions in the past 12 months, including blockbuster deals from the likes of Assa Abloy AB, Hexagon AB and Sandvik AB.

“It looks like SKF needs to do some M&A and they say their primary growth driver will be organic,” Okur said.

The bearings maker’s new strategic blueprint doesn’t however mean a complete block on buying other companies, according to the CEO. “We will constantly be looking at smaller bolt-on acquisitions to enhance our capabilities,” he said.

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