This post was submitted by Capstone Managing Director John Dearing:

When you meet with a target company OWNER, make sure you capture your thoughts immediately thereafter.

There are several reasons this is important:

1. You will (if properly prepared) undoubtedly gain valuable insights into the inner workings of the company
2. This data should be utilized to evaluate whether or not your company remains interested in pursuing the opportunity
3. M&A is not a one person process - this data should be shared with others for their analysis and thoughts
4. If you have an acquisition plan and strategic rationale established, you (or your team) need to test whether or not this company, market, technology still fits given the new information
5. The data will be used during due diligence, negotiations and integration (business terms can also be developed from these summaries as well)

Something as simple as notes, can increase your likelihood of not only appropriate resource allocation, but also increase your likelihood for success in the world of M&A.

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

When is enough planning, enough?

As strategic buyers, our clients are constantly seeking additional data on acquisition prospects.  This is not a bad perspective, but it does become an issue when they don’t have the ideal data set for evaluation purposes established at the beginning of the process – to compare candidates to each other and to the criteria.

Another known fact - The more people who get involved in the deal, the more questions get asked.  The more questions, the more frustration develops on the seller’s side.  So if people on your team will be evaluating a Target, have them provide input on the attractiveness criteria at the BEGINNING of the process whenever possible.  With privately-held, not-for-sale owners, you need to keep deal momentum.  You need to keep the selling owner saying “YES” – not, “Why didn’t you ask me for that information the first time you submitted a list of inquires?”

To do that, you need to Plan for YES and Plan for M&A Success.

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

Two separate clients asked me for a Letter of Intent (LOI) sample within 48 hours.  Other typical questions include:  “What should an LOI contain (or not include)?” and “Why use an Memorandum of Understanding or a Term Sheet versus an LOI?”

Capstone looks at an LOI (and all of its derivatives) as a “marketing” document.  Especially in the not-for-sale M&A space, the LOI needs to “stand on its own merits”.  Meaning, the owner/audience and the direct influencers, need to be able to quickly understand three things:
•    Why you are interested in their specific company (e.g., talent, customers, markets, technology, etc.)?
•    What is your “vision” for the combined entity (e.g., joint benefits, why stronger together, etc.)?
•    What you are offering (beyond simply a price)?

To increase your likelihood of success, include components in your LOIs that clearly outline how you are addressing the owner’s needs, wants, and desires.  The owner ‘Hot Buttons’ as we refer to them. If you address them, letting the owners know you heard what they said while positioning your LOI as a stand-alone marketing tool, you will get more YES answers and “sales”.

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When our new clients inquire about how we make prioritization decisions with limited data in the world of M&A, our answer is simple and straight-forward – you don’t need all the information as long as you have the CRITICAL information.  Consider this process:

•         Step #1 – You need “screening” criteria that will help you (and your group) make a decision.

•         Step #2 – Find a trial acquisition prospect.

•         Step #3 – Gather prospect specific data for the priority criteria.

•         Step #4 – Test and refine your criteria.

•         Step #5 – Add acquisition prospects and benchmark how they “fit” versus the criteria (and against each other).

Use screening criteria and acknowledge you are not in due diligence so you don’t need everything at this phase of the prospecting process.  Evaluate acquisition prospects and SAVE resources by focusing on only gathering the RIGHT information.

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

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

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