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

From my recent experience working with middle-market companies, I would have to agree with this article that states that there were an increasing number of divestitures by multinational corporations (MNC) in 2009.  In particular, my work in the specialty chemical industry showed me that the economic downturn has forced many MNC’s to reassess their portfolios. This reassessment includes divesting any businesses that are not aligned with future strategic goals. Divestitures will also allow these MNC’s to clean up their balance sheets -  in other words, “free up cash.”  The reassessment of these portfolios has generated tremendous opportunity for middle market companies that are strongly positioned financially. Look for this divestiture trend to continue in 2010.

Technorati Tags: Bob Kwaja, Capstone, divestiture, External Growth, Integration, M&A, M&A News, m-and-a, mergers, Mergers and Acquisitions, specialty chemical

Capstone’s Senior Vice President, Wes Teague, was featured in Future Age, the magazine of the of the American Association of Homes and Services for the Aging (AAHSA). Wes is vice-chair of Goodwin House, Inc., community for seniors in Alexandria, VA.  The article features comments Wes made after his attendance at AAHSA’s 2009 annual meeting, along with an interview.  The digital magazine can be accessed by clicking here, with Wes’ interview found on pages 38 and 39.

Technorati Tags: Capstone, External Growth, Future Age, senior housing, wes teague

I am hosting a webinar tomorrow (December 17) with CPE credit being awarded!

We’ve heard from our audience that they want an opportunity to earn CPE credits by the end of the year, so we’ve developed a webinar on an in-demand topic: current legal topics in M&A.

Even if you are not a member of the bar, 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:
- Define a typical timeline for the M&A process
- Describe the key principles and purpose of a Letter of Intent and Term Sheet
- Define the key differences between a stock purchase, asset purchase and merger
- Explain the basic contents of  typical sections of an acquisition agreement, including sale and Purchase, Reps and Warranties, Indemnification, Closing and Post-Closing

I will speak for 50 minutes followed by a question and answer session.

Date: Thursday, December 17, 2009
Time: 1:00 PM ET/ Noon CT/ 11:00 AM MT/ 10:00 AM PT
No Prerequisites or Advanced Preparation needed!
To register, click here: https://www2.gotomeeting.com/register/325735746

Registration Fee: None

Once you register, you will receive information on how to listen to the webinar and view the slides.

Please feel free to forward this information on to anyone who might be interested in corporate growth strategies.

CPE Credits – 1 CPE credit in Business Law will be given for those attending this webinarP

Program Level:  Basic
Delivery Method: Group Internet-Based
Refund policy: N/A
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

For questions or concerns, please contact Matt Craft at 202-776-0500 or mcraft@capstonestrategic.com

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, business law, Capstone, CPE, David Braun, External Growth, Integration, M&A, Mergers and Acquisitions, webinar

A recent round table of corporate dealmakers at a conference sponsored by The Deal offered some interesting insights into the strategy mindset of some of the largest corporations in America.  All of the panelists expressed a “commitment to external growth.”

Two observations stood out to me. First, Sean Murphy of Abbott Labs said they are still “looking for strategically sensible deals”, implying that even in the face of current economic uncertainty, strategic deals are still being done.  Duncan O’Brien of GE noted that there were “some deals (they) couldn’t pass up because of valuations in this economy.”  We here at Capstone have long advocated that companies should not stop looking for ways to grow their companies externally - they just need to be smarter about how they do it.

Second, as an example to reinforce this last point,  in referring to the use of joint ventures as an external growth vehicle, O’Brien stated that they have learned in a JV “to do enormous documentation in the beginning to circumvent problems” and to put in “the right leadership, putting emphasis on HR”.  In our opinion due diligence (enormous documentation) and integration (emphasis on HR after the deal is closed) are two sides of the same coin, and continue to be especially important in a strategic investment, where the return on investment can be as subjective as objective.

Technorati Tags: Abbott Labs, Acquisition Strategy, acquisitions, business acquisitions, Capstone, due diligence, External Growth, GE, Integration, M&A, M&A News, Mergers and Acquisitions, wes teague

There is a trend afoot for firms to become more vertically integrated – controlling their supply sources, manufacturing, and distribution channels.  A few recent examples include Oracle acquiring Sun Microsystems to integrate hardware and software and H-P acquiring EDS to capture more consulting and professional services revenue, along with buying 3Com to capture more customers.  In the past, companies divested non-core assets and outsourced much of their work to create a more variable cost model. I think this current wave of vertical integration will be short-lived. It is primarily to capture revenue which companies desperately need.

What’s next, then? There is now an opportunity for companies to be creative with deal structuring and consider minority investments and strategic alliances.  Firms then have the advantage of having identified resources as partners, and can invest in and be privy to the expertise of a company, but are not saddled with having to run the businesses which are out of their expertise.

For example, I don’t see GM returning to being a fully integrated manufacturer like it was 50 years ago.  Rather than being a solid vertical line, you will see companies have dotted lines where they own key pieces and outsource others and have minority investments in some, majority investments in others and even strategic alliances.  The key will be for companies to decipher what pieces will be critical for them in 2020 and then figure out what the best deal structures are to maintain those key components.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, Hewlett Packarad, Integration, M&A, mergers, Mergers and Acquisitions, Oracle, Sun Microsystems, vertical integration

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.

Technorati Tags: acquisitions, Capstone, David Braun, External Growth, Illy, joint venture, M&A, M&A News, Mergers and Acquisitions, Starbucks

As the Wall Street Journal pointed out last week, many Mom-and-Pop operations lack formal crisis plans - and are shutting down as a result of the current economy.  In our experience, this lack of planning is not limited to family enterprises.  It is disturbing how many firms – small, medium and even large – lack formal planning for crises, for succession, and for growth.

It is not always for lack of vision, or a desire to be proactive.  Many times, it is for lack of know-how, beginning with where to start.  Companies who use a systematic, process-oriented methodology to plan for the future stand a much greater chance of being successful.  Have you thought about planning for these issues?

• A five-year strategic growth plan
• Leadership succession
• Estate tax impact
• Continuity of operations in the case of a natural disaster

Firms would do well to ensure that they think about crisis planning as much as they do operations or finances, utilizing expert third-party facilitators if there is no in-house capability.  This is especially true in today’s uncertain business environment, where inflexibility or failure to act can be a death knell.

Technorati Tags: Acquisition Strategy, Capstone, disaster planning, divestiture, estate planning, External Growth, M&A News, Mergers and Acquisitions, wes teague