Clients always want to know how  we can quickly understand the perspective of the owner of the acquisition target.  Over the past 15 years focusing on the privately-held, not-for-sale space, we have a 98% success rate getting our clients in meaningful conversations and meetings with companies that are deemed to be a strategic fit.

The reason the Capstone approach is so successful is that it is truly unique – and we continue to hone it every day.  Many clients and prospective clients have experience ‘attacking’ owners with bulk mail and cold calls - which are almost always unsuccessful. Owners on the receiving end of this barrage tell me, “I get calls from people who want to buy my company every day.  I ignore them.”  This is in addition to CEOs who tell me that generic letters go straight into the ‘round file’.

If you were to talk to owners we target, you would hear a much different response.  Usually, it sounds like “I am not sure why I returned your call but something was different about you.  It seemed sincere…you know more about us.  It makes sense.“

You need to have the right data to deem a company attractive.  You need the right information to ‘open the door’ with an owner.  You need to have a well thought-out approach and story for the owner.  Remember, they not only don’t need to sell – they don’t need to talk to you.  Consider how you can alter that dynamic.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, External Growth, Growth, John Dearing, M&A, M&A News, m-and-a, mergers, Mergers and Acquisitions, owner contacts, owners

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.

Technorati Tags: Acquisition Strategy, acquisitions, board, business acquisitions, Capstone, due diligence, External Growth, John Dearing, M&A, m-and-a, mergers, Mergers and Acquisitions

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”.

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

PWC released its second quarter report on M&A activity in the industrial products sector.  Two items from the report stood out for me.  First, M&A activity in the second quarter actually rose compared to the first quarter of 2009 (although still down significantly compared to last year).  This could be a sign that some of the fear that has gripped the marketplace is beginning to subside.  Second, the following quote struck me:

Strategic buyers continued to act as the main investors in the majority of deals in all segments of the industrial products industry as financial investors remained on the sidelines because of continued tight credit markets and a lack of liquidity.

Cash continues to be king.  Companies that have cash are using it to snap up weak competition and make strategic moves to strengthen themselves for the future.  They are making small, targeted acquisitions to calibrate their business.

At Capstone, we are continuing to push our clients to be active buyers in this market.  Our mantra remains: “If not now, when?”

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

I recently appeared on Jacobson & Katz: Inside Maine Business to discuss the current state of the mergers and acquisitions market, as well as the Capstone approach to the M&A process.

You can view Part One here:

And Part Two, here:

To see other episodes of Jacobson & Katz: Inside Maine Business, visit www.insidemainebusiness.tv

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, External Growth, John Dearing, M&A, M&A News, market research, Mergers and Acquisitions, video

Recent news indicates that the federal government will “prop up” the major banks if they continue to falter.  This has some worried that these large financial institutions will be “nationalized”.  The government says that this is not the case:

The strong presumption of the Capital Assistance Program is that the banks should remain in private hands.

Simply put, the government is making a minority investment in these banks, and there is a question of how much control the government will have in these institutions.

Similarly, when we suggest to our clients the possibility of a minority investment in a company instead of an outright acquisition, we sometimes receive push-back over the issue of control.  In fact, in two separate meetings over the past month, our clients’ expressed concern that they would “lack control” even though they would have a financial stake in the company.

A minority investment in and of itself does not mean that the majority shareholder has total control over the direction of the company.  In fact, you can own only 1% of the company and still put yourself in the driver’s seat to get the strategic relationship and benefits you want. The issue of control comes down to the way the minority investment (or any deal) is structured.

It is our philosophy to first find the right strategic prospect, win them over and then find a mutually beneficial solution to the deal structure to bring the two companies together.

Concern over control should not stop you from considering minority investment, or any particular form of external growth.

Technorati Tags: Acquisition Strategy, acquisitions, Capstone, John Dearing, M&A, M&A News, mergers, Mergers and Acquisitions, minority investment

I recently read an article through DealBook indicating that the Obama administration will increase antitrust enforcement during its tenure, raising the anxieties of many on Wall Street.

In the big picture, I don’t think this increased oversight will have much impact on middle-market deals - after all, it’s usually only the really big deals that could have monopoly implications.

What stuck out for me in the article, though, was the following statement:

Economic downturns tend to force executives to find ways to reduce costs…

Merging with a rival, and reaping the synergies that come from eliminating duplicative functions, is a crucial component of any manager’s recession survival tool kit…

It’s my belief that while cost-cutting is one way to deal with a tough economic situation, it can only help you tread water for so long.

Proactive growth proponents look at a complementary acquisition or new market entry opportunity as a chance to increase revenue and cross-sell - leading to more significant growth in the long run.

I often find that the cost-cutting aspects of these deals are a way to get more conservative finance colleagues to sign off on the deal.  The benefits are real and helpful, but cannot by themselves lead to sustainable growth.

Although many executives are just trying to weather the current storm, I believe that those that are bold with their growth moves will come out significantly stronger once it passes.

Technorati Tags: business acquisitions, Capstone, External Growth, John Dearing, M&A, M&A News, Mergers and Acquisitions

Why do stock market investors sell when prices collapse and buy when prices soar? Why do real estate owners display the same irrational behavior? The math is hardly difficult. It’s better to buy when valuations are low and sell when they are high. Yet human nature seems to require that we run with the market cycles instead of against them.

It’s easy to see how that plays out in M&A. The other day, one of our clients said to me: “We’re retrenching like everyone else”. Well that’s honest, but hardly inspiring. My response is: If you have a plan for growth, stick to it, irrespective of the market. After all, a good financial advisor would say no less about your plan for retirement. Stand by your strategy through good times and bad.

I understand the real world of company dynamics makes this easier said than done. In any organization, there will be a handful of people with the vision to see that M&A is often the fastest track to growth. But in times of economic anxiety, they will be told that their ideas are far too risky, that all we should be doing is focusing on cutting costs and getting by. 

In reality, the long-term winners will be those that are seizing on the extraordinary opportunities this current period is producing. They will be more proactive than ever, not just looking for bargains but seeing the chance to expand in existing markets and penetrate new ones by joining force with other players who are now more motivated than ever to contemplate some form of union.

Technorati Tags: acquisitions, Capstone, External Growth, Growth, Integration, M & A News Acquisition Strategy, M&A, mergers, Mergers and Acquisitions

Officially, there’s been a drop of some 27% in M&A deals in the past year. In reality, this number is skewed by the large deals. In the markets where Capstone plays — mostly deals under $1 billion — there is a drop in activity but not to this catastrophic degree.

There are still plenty of healthy companies out there looking for ways to reposition themselves. And they are eager to take advantage of the lower valuations the changed environment has brought. Those that have fire in the belly are taking action to grow.

The mode of growth has shifted, however.  With the debt world crumbling and the flow of private equity almost dried up, creative executives are looking at alternatives to the traditional acquisition. Minority ownerships, joint ventures, strategic alliances… Reviewing multiple paths to external growth is part of the Capstone strategic process, so it’s interesting to see this trend emerging in the market at large.

One force that’s noticeable is the pressure from end-customers for consolidated solutions. They are increasingly impatient with dealing with multiple vendors. This creates the opportunity to become the preferred solution-provider, assuming you can team up with one or several other partners to offer a one-stop solution to the customer. 

It often takes vision at the CEO level to see these larger opportunities. I have been dealing with a couple of clients recently that have two or three successful lines of business running. There is no obvious problem with any of these lines, but the question comes up: “How do we rise to the next level?” That requires looking across and beyond the current lines to see what is possible through creative union with other players.

Technorati Tags: acquisitions, Capstone, External Growth, Growth, Integration, M & A News Acquisition Strategy, M&A, mergers, Mergers and Acquisitions

Here’s a recent exchange between the two principals in an acquisition we are advising on. Seller to buyer, “So what’s your exit strategy?”  An odd moment in the circumstances. Usually, the last thing M&A buyers have on their minds is offloading the newly combined entity. Seems a bit like talking about divorce at a wedding.

In fact, the seller was revealing a rare foresightedness. Wise company owners keep a constant eye on the exit, and have plans for getting out even as they appear to be getting deeper in. 

Few owners I have seen actually exemplify this wisdom. They are too engrossed in the demands of growth, worrying about the next contract, the new hire, the late delivery… They are staring at the ground three feet ahead of them, not the far horizon. So when do they actually get to consider selling? When disaster strikes. A major account is canceled. A new competitor surpasses their technology. Three of their key people leave. 

Well no surprise, that’s hardly the optimum time to sell! Do you really want to put your company on the market when it’s worth the least? Better to think ahead while times are good. Having an exit strategy doesn’t oblige you to leave. Planning how to attract a buyer doesn’t compel you to hang a “for sale” sign on the door. 

You should not only have an exit strategy, you should keep revisiting and updating it as the market changes.  That way, you’ll be positioned to take advantage of your company’s strengths, rather than risk falling victim to its weaknesses.

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