The Merchant Asset Fire Sale: Deal of the 21st Century?

Companies that were on a buying spree before 2001 are putting assets worth billions n the block

A casual observer might expect that the industry's economic condition would produce a cornucopia of cheap assets for acquisitive companies . Eventually it might, but so far, it generally has not.

"Many investors enter this market with the impression that because the industry is in trouble, you will be able to buy assets at low prices," says Jeff Bodington, president of Bodington & Co. in San Francisco. "That may be true in some situations, but if you want to get good assets you still have to pay top dollar."

In 2002 and into the first quarter of 2003, prices have remained strong for high-quality assets-those with firm, long-term agreements and solid operational characteristics . The reason? A "classic flight-to-quality market," according to Bodington.

First, investors are eager to acquire high-quality assets, so demand is strong. At the same time, investors are shunning projects that lack long-term contracts, or those with operational problems.

Second, companies (and their creditors) are understandably reluctant to part with their strongest assets, but they are eager to dump those considered, in PR lingo, "non-core" or "non-strategic." Indeed, many companies are banking on their ability to sell those assets. As a result, the number of strong assets on the market has been limited, and the number of weak ones is growing by the day.

This supply/demand combination is keeping prices buoyant for contract-secured assets. Others, however, are not yielding their book value or their original cost.