According to CFOs recently polled by Merrill Datasite, “87.1% of respondent are considering M&A activity as a means to grow.”   We at Capstone agree – the time is right to make a BOLD move – growing proactively through external growth.  Our clients are using acquisitions and investments to create a competitive advantage by adding capability breadth, neutralize threats, add market share or expand into new markets.  Senior executives and owners we deal with agree – revenue growth is the biggest challenge today.  M&A, if approached in a well thought out manner with the proper resources,  can solve that riddle.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, CFO, External Growth, John Dearing, M&A, M&A News, mergers, Mergers and Acquisitions, Merrill Datasite

I just spoke at the Wisconsin Institute of Certified Public Accountants Spring Conference and the general sentiment was cautious optimism for the next 12 months.  Several attendees mentioned they only see distressed companies selling and at 0.5x revenues.  Another mentioned his firm has lots of cash and no debt but they are hesitant to part with it.   All-in-all I think many are taking a wait and see attitude - which for the middle is okay, but the strong companies and weak companies may wait too long. Long enough that their moment will have passed.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, CPA, David Braun, External Growth, M&A, M&A News, mergers, Mergers and Acquisitions, valuation, WICPA

Valuing a for-sale opportunity becomes more challenging during periods of economic and financing uncertainty.
During an economic boom, sellers are often able to obtain top dollar due to increased competition among buyers, with readily available financing options.

However, in today’s market, buyers are more cautious about the businesses they are buying and the amount they are willing to pay. Despite a challenging economic market, most sellers have not adjusted their expectations regarding the value of their businesses. Such misperceptions make negotiating a purchase price much more difficult.

An earnout provides a way to bridge the seller/buyer gap with contingent payments that mitigate risk for buyer and creates incentives for sellers/ management. For example, the targets can be based on meeting certain revenue goals or the development of a product. While not new, earnouts are more frequently used during economic downturns and with small, private company acquisitions.

Earnouts are challenging instruments to structure. Since earnouts can result in litigation among the parties, it is vital that the buyer and seller carefully consider the conditions under which future earnout payments will be made.

Since an earnout is based on future financial performance, both parties should be clear about the method for calculating the performance targets (including accounting methods), how much control over the operations of the business the seller retains during the earnout period (including the amount of capital available to fund the business, who has the ability to hire and fire employees, and how strategic business decisions are made), and seller’s remedies (such as a fixed dollar amount of damages) if the buyer breaches its obligations under the earnout.

While earnouts are not appropriate for all transactions and can be complicated and time consuming to negotiate, earnouts provide an additional tool to consider as either a buyer or seller – particularly in an uncertain and challenging economy.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, earnouts, External Growth, Gretchen Johnson, Integration, M&A, m-and-a, mergers, Mergers and Acquisitions, valuation

“There are a lot of companies that are flushed with cash, they want to do deals and targets that feel that they are 20 percent below their historic highs so they are not as interested in doing a deal,” he explained. “So that’s the right territory for a lot of unsolicited bids.”

I agree with Frank Aquila’s comment in this article. We have several clients on the buy-side that are positioned strongly financially - flush with cash and ready to grow. We are also seeing plenty of opportunities in the marketplace when it comes to strategic acquisitions, particularly with “not-for-sale” companies.  Financial players are still on the sidelines.   The biggest issue is that target companies are stuck on valuation multiples from 2-3 years ago, and, as we all know, times have changed.  As Mr. Aquila also stated, companies are 20 percent below their historic highs.

We believe deals will get done in the middle market, but both parties must be flexible when it comes down to deal structure.  Buyers and sellers must put everything in the context of the current economic environment and meet in the middle.

Technorati Tags: Acquisition Strategy, acquisitions, Bob Kwaja, business acquisitions, Capstone, deal structure, External Growth, M&A, mergers, Mergers and Acquisitions

M&A: From LOI to Close
CPE Credit Awarded
Thursday, March 11, 2010; 1:00 PM ET

David Braun is hosting a webinar with Capstone Senior Vice President Wes Teague.

Building on the success of our last webinar on Contemporary Legal Issues in M&A, Capstone is presenting a new program that will lead you through one of the most challenging, yet exciting parts of any deal:  The journey from Letter of Intent to Close.

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:
•    Explain the structure of an Letter of Intent and how to make it beneficial to your situation
•    Describe how to manage the Due Diligence process from both the viewpoint of the Buyer and Seller
•    Utilize strategies to negotiate an agreement that is beneficial to both sides
•    Identify how valuation is affected during the Due Diligence and Closing process
•    Recognize what is expected at Closing
•    Begin to execute your Integration game plan
David and Wes will speak for 50 minutes followed by a question and answer session.

No Prerequisites or Advanced Preparation needed!

To register, click here: https://www2.gotomeeting.com/register/875225514

Registration Fee: $79

IMPORTANT PAYMENT INFORMATION:  Once you register, we will send you a request for payment via PayPal (may take up to 24 hours).  Once payment is confirmed, your registration will be approved and you will receive the log-in information for the webinar.

Mark you calendar for our upcoming webinars for CPE Credit:
•    Thursday, April 8, 2010 1 PM ET:  “Finding Opportunity for Growth” - 1 credit in Business Management and Organization
•    Thursday, May 6, 2010 1 PM ET: “Identifying the Right Markets for Expansion” - 1 credit in Business Management and Organization
•    Friday, June 5, 2010 1 PM ET: “How to Find Top-Notch Companies” - 1 credit in Business Management and Organization
For questions or concerns, please contact Matt Craft at 703-854-1910 or mcraft@capstonestrategic.com

CPE Credits – 1 CPE credit in Business Management and Organization will be given for those attending this webinar

Program Level:  Basic

Delivery Method: Group Internet-Based

Refund policy: Requests for refunds must be received in writing by 1:00 PM ET Wednesday, March 10.  After 1:00PM Wednesday March 10, a credit will be given for a future webinar.  In the event of a cancellation, you will be given the option of a full refund or applying your fee to a future webinar.

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

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, due diligence, External Growth, Indication of Interest, Integration, Letter of Intent, LOI, mergers, Mergers and Acquisitions, webinar, wes teague

Banks are still not lending much these days and last year  had their sharpest decline in lending in 67 years.  A friend who is a Vice President at a major US bank recently told me: “We have lots of money to lend, just no one that we want to lend it to.”   So how are cash-poor companies with good growth potential going to grow?

The simple truth is that many won’t.  But for others there are several options:

• Go slow
• Bring on new equity partners
• Align with better credit worthy people (think co-signing here)
• Get trade credit from larger suppliers
• Talk to your credit union or community bank (especially those without a lot of mortgage loans)
• Keep talking to your bank.

One CEO told me he met with 32 banks before he got one to believe in him and his business plan.  From the banks’ perspective they are still working through a mountain of bad real estate loans and the commercial credit crunch is just starting to emerge.  So what will banks do about all these commercial notes?  I think their options are limited.  If they call the note the owner may go into foreclosure and fire sale the property.  It seems to me this creates a FASB 157 issue for banks and would require them to re-value their balance sheet which just exacerbates the problem.

I predict we’ll see banks extend credit and hope for better days ahead to refinance, syndicate or sell off these commercial loans.   The bigger opportunity here may be for a new breed of commercial capital to fund growing companies – perhaps a bank, mezzanine lender, private equity investor and venture capitalist all blended together to create an organization that actually lends money to companies.  We don’t seem to have many of these nowadays.  I’m thinking I should do research on Banca Monte dei Paschi di Siena S.p.A., located in Siena, Italy.  It was founded in 1472 it is the oldest surviving bank in the world.  Surely they have been through this before.

Technorati Tags: Acquisition Strategy, acquisitions, Banca Monte dei Paschi di Siena, banking, business acquisitions, Capstone, credit, David Braun, External Growth, FASB 157, loans, M&A, M&A News, mergers, Mergers and Acquisitions