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

Private equity fundraising from 82 closed funds totaled only $41 Billion in the second quarter - the lowest level since 2003, according to the Private Equity Professional Digest. This is important news for strategic buyers because it continues to demonstrate that financial buyers will remain limited in their M&A activity - but that the clock is still ticking to take advantage of this environment

PE funds will have to do smaller deals or take less equity in order to make the most of their funds.  On the other hand, strategic investors with cash will have the upper hand and should be able to close more transactions – if they are willing to take action.

If a strategic firm will not make investments in their industry in this market, I question their resolve for the industry and also would ask the executives why their wouldn’t use their strong balance sheet in this depressed market?  With tongue firmly in cheek — are you waiting for prices to go up before buying?!

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, M&A, M&A News, private equity

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

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

I recently had the opportunity to drive over 1,500 miles over a five-day span throughout the southeastern US.  Two things stood out to me during my drive.  One was the number of shuttered motels, empty and fenced-in distribution centers, and vacant storefronts in small towns and strip centers.  All glaring examples of the on-going economic issues facing the country.

The other thing, however, was an equal number of new motels, new and bustling stores and shops, and numerous service and manufacturing businesses obviously enjoying success and growth.  This dichotomy was side-by-side; regional influences and general economic malaise could not account for the differences.

I believe the difference was the planning and foresight of some owners, and the lack of same by others.  Obviously, some owners see these times as an opportunity – they are willing to think ahead and to plan, and to execute upon those plans, while others wither and die as they “wait to be rescued”.  Don’t be like those shuttered motels and fenced-in empty businesses – take the effort to plan ahead and be opportunistic - if not now, when?

Technorati Tags: Acquisition Strategy, acquisitions, Capstone, economy, External Growth, Growth, M&A, M&A News, mergers, Mergers and Acquisitions, road trip, strategy, wes teague

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

“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

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

More and more I am seeing creative deal structuring in today’s M&A market.  This comes as little surprise.  The credit markets remain quiet; companies are not growing their way out of financial stress and smaller firms often finding themselves squeezed by larger companies who offer more products and better terms.

So what is a small to midsized business CEO to do?  One suggestion us to align yourself with companies where you do not share the same customer (no need to fight over scraps) and find companies that add value to your offering and aggregate the products and service for your customers.  In some cases we are advising our clients take minority positions in critical companies. In others, we advise acquiring a majority position and in others we are structuring subcontracting agreements.  There is no silver bullet, but the key is to have some weapons on your side that can differentiate you - particularly from your fretful competitors who are paralyzed.  Keep in mind I think you are going to have a lot more buying competition in 12 to 16 months.  Time is becoming of the essence.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, deal structure, External Growth, M&A, m-and-a, mergers, Mergers and Acquisitions, minority investment

A recent New York Times article, “How to Sell Your Business” provided some excellent advice about how to sell your own business. It recommended assembling “a team of professionals..an attorney and an accountant that you trust”. This is good counsel and should be followed by anyone selling, or buying, a business.

However, the article also suggests using “For Sale” forums, such as Internet sites listing businesses for sale, suggesting that “most savvy buyers” research the Internet to find businesses for sale.  I strongly disagree with this.  Why would you just set your business out on a shelf like yesterday’s bread?   You should use hire a professional firm that specializes in finding businesses that meet the buyer’s specific criteria for growth, fill a need, or are otherwise the “right” company to buy.

The Internet cannot do that and for-sale business bulletin boards cannot do that. In fact, many so-called business brokers cannot do that either. It takes the right kind of experienced firm, with a proven process and in-depth research capability to identify, research, qualify and close the “right” company. Most sellers only sell a business one time and they should beware of claims that make it sound easy - it’s not.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, divestiture, External Growth, for sale, M&A, M&A News, m-and-a, market research, mergers, Mergers and Acquisitions, New York Times, wes teague