This post was contributed by Capstone Senior Vice President Wes Teague:

Lockheed Martin (LM), one of the country’s largest government contractors, recently announced its intention to sell or spin off one of its oldest and profitable units, the Enterprise Integration Group.  The EIG,  a unit of LM for 42 years and with revenues of over $1.3B (out of LM’s $45.2B overall revenues) would no longer fit in LM’s long-term strategic plan, due to potential conflicts-of-interest with other, larger units of the parent organization that were significantly more important to the future of LM.

The decision to shed a long-standing, profitable unit or division or product is a hard one to make, especially in uncertain economic times.  With a proper strategic plan in place that maps out the organization’s longer-term growth plans, the decision can be made objectively, based on clear criteria and priorities that help remove the emotionalism of losing a “favorite child”.  Facilitated (to remove emotions) planning sessions can help companies make these decisions that at first glance seem counter-intuitive.  Intuition has its place, but a strong, well-thought out plan is usually a better bet for long-term success.

Technorati Tags: Acquisition Strategy, acquisitions, Capstone, divestiture, Enterprise Integration Group, External Growth, Lockheed Martin, M&A, M&A News, mergers, Mergers and Acquisitions, wes teague

PWC reported recently that 46% of CEO’s in their survey indicate they plan to sell their company, and of these 66% said they plan to sell within the next five years.  The primary reason cited in the report is to diversify and create liquidity.

My experience with CEO’s of privately held firms is they typically have most of their net worth in tied up in their company. They’ve seen the drastic drop in their stock portfolios, missed opportunities to sell at the market peak in 2007 and are getting closer to retirement age.  I had one CEO tell me he didn’t think he could last until the next big upturn in the M&A market and he can’t chance more downturns.

I think you will see a record number of owners looking to sell starting in the next 12 months (perhaps sooner if the capital gains tax debate resurfaces) and you have record amounts of cash sitting on the sidelines which will start moving into the market in the next 12-15 months.  Put on your seatbelt because I think we are preparing for a very exciting ride in the M&A market.

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

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

The New York Stock Exchange ended 2009 up nearly 30% over 2008.  That makes a lot of individuals feel better about the economy because they “feel” wealthier.

Companies are no different.  With an up market we expect M&A activity to increase, generally as a laggard to the equities market.  Think about it:  a company’s stock price is up so they can use the stock as currency to buy other companies or as currency to obtain debt to acquire companies. Either way, we should  expect an uptick in 2010 M&A activity to follow the strong performance of the equities markets in 2009.

Warren Buffett commented on this topic recently when he skewered Kraft for its stock offer to Cadbury saying:

The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury

Watch for more public companies to make acquisition announcements, especially after they report 2009 earnings.  This could be a good time to think about divesting!

Technorati Tags: Acquisition Strategy, acquisitions, berkshire hathaway, business acquisitions, Cadbury, Capstone, David Braun, divestiture, External Growth, Integration, Kraft, M&A, M&A News, mergers, Mergers and Acquisitions, warren buffett

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