I was struck by Matthew Karnitschnig’s excellent article in yesterday’s Wall Street Journal. His opening line was perhaps an overstatement — “M&A is almost dead”. But the gist of his piece is right on the money.

Mr Karnitschnig’s theme is the one I have been pounding in this blog for the past few weeks. In the world of M&A, cash is king. He points out the shift of power from sellers to buyers, and the extraordinary advantage held by cash-rich companies right now.

Despite that advantage, even the cash-rich players are mostly sitting on the sidelines right now.  Nevertheless, those that come out to buy are able to seize on significant opportunities that weakened companies present. The article also points out the rise in PIPEs (private investment in public enterprises), and makes an accurate observation that in the current climate, even where cash is available buyers are shifting their preference to stock purchases. Why? To hang on to the cash, of course.

One other very striking comment: “With growth unclear, buyers are more focused on what companies are earning now than what they may earn in the future.” That is no doubt true, but it’s an alarming truth. If you are considering a purchase, this is a trap you must make every effort to avoid.

One reason the deals we put together at Capstone are so frequently successful is that we are adamant about one principle: strategize your acquisitions in terms of future demand.

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