The next time you visit your local (i.e. NOT Starbucks) coffee shop, pay attention to whether they touting that they are exclusively brewing a particular brand of coffee. If they are, there is an increasing likelihood that it is Illy, a premium Italian coffee brand.  Instead of opening dozens of new coffee houses, or acquiring local chains, Illy has decided to take on Starbucks by signing exclusive deals with independent coffee houses - first in Italy and over the past year throughout the United States.  This joint venture provides a differentiator for the cafe and creates a larger pipeline for Illy to compete against Starbucks.

As we wrote nearly a year ago, external growth is about more than just mergers and acquisitions.  We encourage our clients to look at all options and let demand in the marketplace tell them which way to go.

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These are tough times for the legal profession.  Here in Washington, DC, one of the lawyer-capitals of the world,  it’s difficult to go a block without running into a recently graduated law student who’s looking for a job.  In these tough times, many law firms, large and small, are looking for a way to grow their business.  Two firms that are looking to grow externally are Lovells and Hogan & Hartson. Their potential merger would create  one of the world’s largest law firms with over 2500 professionals. While they share the common thread of regulatory and antitrust work, the merger is based on geographic expansion.  Lovells wants access to the US market and Hogan wants more access to Europe, while both are seeking to expand their presence in Asia.

Geographic expansion may make sense if you carefully target your strategic partner and perform the necessary diligence on that geographic market.  If it’s a fit, new customers (or clients) can easily become accessible.

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Over and over on this blog, I have strongly advocated external growth to complement organic growth.  Today the largest 500 non-financial American firms have nearly $1 Trillion in cash and short-term investments on their balance sheets.  That’s Trillion with a ‘T’! This represents roughly 9.8% of their assets.  What does that tell me?  Companies are continuing to hoard cash.

I believe this accumulation of cash will continue for some time because credit still remains scarce, CEOs are anxious about economic pressures and companies are unsure where government regulations are headed.  Given all of this, strategic buyers have a unique window of opportunity for the next 12-16 months to make bold moves.  My philosophy remains “If Not Now, When?”. You’ve seen us say it before.  I’m convinced that sound companies with strong balance sheets, capable management, and a solid plan for growth have an unprecedented opportunity to make strategic acquisitions.

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