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By David Braun on August 30th, 2008

Mergers & Acquisitions Daily brings a fresh perspective to the ever-changing world of M&A. As a veteran practitioner in the field, I have fashioned a new approach to the challenges of external growth — a systematic process that has resulted in numerous successful deals across multiple industries.  

In this blog I share my thoughts on topical M&A issues combined with insights from Buying Power, my forthcoming book on acquisition strategy. Our newsfeed from the markets adds daily currency to the site. Most important, I welcome your comments on my posts — so join the conversation and enjoy the blog!

To make a comment, click the TITLE of the post.

• Get the Board on Board Early

  I was asked during a recent client review for my recommendation on when it was appropriate to divulge  leadership’s M&A intentions to the Board.

  Based upon my experience, there is no time like the present. You want to avoid surprises. You want to get questions out “on the table” in time to develop answers. You want to avoid ‘dart throwers’ by getting your Board ‘on board’ with direction and rationale. You want to make recommendations as leaders but appropriately use advisors or the Board as ’sounding boards’ so you can develop the right analysis and complete due diligence to the satisfaction of the ultimate decision makers.  This will enable you to maintain deal momentum with the target owner.

  I could go on but, “why wait?”  Engage with your Board, educate them on you market and prospect criteria, and keep them informed.

  M&A is a “big” decision, so work toward alignment and get the Board involved early.  You will save valuable resources - both human and monetary.
  Wes Teague Featured in AAHSA’s “Future Age”

  Capstone’s Senior Vice President, Wes Teague, was featured in Future Age, the magazine of the of the American Association of Homes and Services for the Aging (AAHSA). Wes is vice-chair of Goodwin House, Inc., community for seniors in Alexandria, VA.  The article features comments Wes made after his attendance at AAHSA’s 2009 annual meeting, along with an interview.  The digital magazine can be accessed by clicking here, with Wes’ interview found on pages 38 and 39.
  M&A and the Market on the Rise

  The New York Stock Exchange ended 2009 up nearly 30% over 2008.  That makes a lot of individuals feel better about the economy because they “feel” wealthier.

  Companies are no different.  With an up market we expect M&A activity to increase, generally as a laggard to the equities market.  Think about it:  a company’s stock price is up so they can use the stock as currency to buy other companies or as currency to obtain debt to acquire companies. Either way, we should  expect an uptick in 2010 M&A activity to follow the strong performance of the equities markets in 2009.

  Warren Buffett commented on this topic recently when he skewered Kraft for its stock offer to Cadbury saying:

  The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury

  Watch for more public companies to make acquisition announcements, especially after they report 2009 earnings.  This could be a good time to think about divesting!
  New Year, Renewed Focus

  Bloomberg recently reported that:

  “Chief executive officers are so sure the economy will keep recovering they’re agreeing to prices that are 37 percent higher than the average since 2001, when Bloomberg started compiling data. While stocks in the S&P 500 are trading at the most expensive valuations in seven years compared with profits in the last 12 months, buyers are looking out to 2011, when analysts say earnings will have risen 52 percent.”

  While I agree with the premise, I think the numbers can be a little misleading.  Specifically, which earnings are they taking the numbers from?  As we all know the past 12 months have been disastrous financial period for almost every business - except perhaps bankruptcy professionals and financial advisors.  If you took the multiples and based them on past averages or against projections for the next 24 months it is probably in line with past year’s valuation multiples.

  The news here though, is that CEOs are back to buying, because they feel the future will be brighter than now.  I continue to believe that for the next 12-16 months it is a market for strategic buyers who have cash.  The credit markets are dormant and CEOs remain reluctant to use debt. So with the increase in the stock market and confidence that the markets have hit bottom and are now improving, many CEOs are getting back into the M&A market.  I predict that in late 2011 you will see a frothy M&A market - so sharpen your strategic focus and carefully evaluate your growth plans!

  Multiples are down, debt is historically cheap, financial buyers are on the sidelines, the market is widely expected to improve so… (you know the phrase) if not now, when?
  Capstone Webinar TOMORROW: Contemporary Legal Issues in M&A

  I am hosting a webinar tomorrow (December 17) with CPE credit being awarded!

  We’ve heard from our audience that they want an opportunity to earn CPE credits by the end of the year, so we’ve developed a webinar on an in-demand topic: current legal topics in M&A.

  Even if you are not a member of the bar, this webinar will provide insight that any professional involved in M&A will want to know.

  After completing this course, you will be able to:
  - Define a typical timeline for the M&A process
  - Describe the key principles and purpose of a Letter of Intent and Term Sheet
  - Define the key differences between a stock purchase, asset purchase and merger
  - Explain the basic contents of  typical sections of an acquisition agreement, including sale and Purchase, Reps and Warranties, Indemnification, Closing and Post-Closing

  I will speak for 50 minutes followed by a question and answer session.

  Date: Thursday, December 17, 2009
  Time: 1:00 PM ET/ Noon CT/ 11:00 AM MT/ 10:00 AM PT
  No Prerequisites or Advanced Preparation needed!
  To register, click here: https://www2.gotomeeting.com/register/325735746

  Registration Fee: None

  Once you register, you will receive information on how to listen to the webinar and view the slides.

  Please feel free to forward this information on to anyone who might be interested in corporate growth strategies.

  CPE Credits – 1 CPE credit in Business Law will be given for those attending this webinarP

  Program Level:  Basic
  Delivery Method: Group Internet-Based
  Refund policy: N/A
  Capstone Strategic, Inc. is registered with the National Association of State Boards of Accountancy as a sponsor of continuing professional education of the National Registry of CPE Sponsors.  State boards of accountancy have final authority on the acceptance of individual courses for CPE credit.  Complaints regarding registered sponsors may be addressed to the National Registry of CPE Sponsors, 150 4th Ave N, Suite 700, Nashville, TN, 37219-2417. Website: www.nasba.org

  For questions or concerns, please contact Matt Craft at 202-776-0500 or mcraft@capstonestrategic.com
  A Record Number of Consumer Product Deals

  According to the Wall Street Journal,  November 2009 was the biggest month in over a year for deals involving consumer products and food and drinks firms, with $12.54 billion in acquisitions.  And it doesn’t look like this momentum will be stopped.  Kettle Chips, Just for Men and Grecian Formula hair-coloring products, Aqua Velva cologne, Brylcreem hair gel, Vagisil feminine products and Ambi Pur brand are all reported to be on the block.  It is interesting to me that such well known brand name companies would sell in a down market. I believe the consumer product industry continues to have seismic changes as younger people are less tied to brands, while at the same time distribution channels like Wal-Mart have strengthening power over their suppliers and continue to expand their private label products. I anticipate more product consolidation as companies like P&G have to remain relevant to their customers and maintain some economies of scale. Perhaps at the end we will have some consumer product companies “too big to fail.”
  Little Orphan Product Lines

  Our buy-side clients at Capstone are seeing the same trend that a recent Reuters article reported: “Companies are making moves to divest assets that are not essential to their operations, while stronger firms, nudged on by their boards and shareholders, are looking to grow and position themselves for the recovery.”  This leads to numerous “orphan” non-core product lines and/or business units.  This is resulting in increased deal flow, with more silent auctions and calls coming in from around the globe.  Further, JPMorgan noted: “We are seeing a pickup in serious strategic discussions that would give us more optimism for 2010.”  Capstone’s pipeline is strong and growing as proactive external growth requirements are driving leaders to “come out of the woodwork” looking for strategic assets that will offset their deficits on the organic growth side as they refine their 2010 budget forecasts.  Do you need to fill a gap? Consider that technologies and product lines are “on the market”.
  A “Commitment to External Growth”

  A recent round table of corporate dealmakers at a conference sponsored by The Deal offered some interesting insights into the strategy mindset of some of the largest corporations in America.  All of the panelists expressed a “commitment to external growth.”

  Two observations stood out to me. First, Sean Murphy of Abbott Labs said they are still “looking for strategically sensible deals”, implying that even in the face of current economic uncertainty, strategic deals are still being done.  Duncan O’Brien of GE noted that there were “some deals (they) couldn’t pass up because of valuations in this economy.”  We here at Capstone have long advocated that companies should not stop looking for ways to grow their companies externally - they just need to be smarter about how they do it.

  Second, as an example to reinforce this last point,  in referring to the use of joint ventures as an external growth vehicle, O’Brien stated that they have learned in a JV “to do enormous documentation in the beginning to circumvent problems” and to put in “the right leadership, putting emphasis on HR”.  In our opinion due diligence (enormous documentation) and integration (emphasis on HR after the deal is closed) are two sides of the same coin, and continue to be especially important in a strategic investment, where the return on investment can be as subjective as objective.