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

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

On this blog previously, David discussed some of the issues surrounding the AOL-Time Warner merger.  Given that the ten year anniversary of the merger was recently marked, I wanted to re-visit the ill-fated deal to explore it a little more in-depth.

AOL and Time Warner merged to create the “world’s first Internet-age media and communications company” for an all-stock combined value of $350 billion. The merger announcement stated that the new company “will be uniquely positioned to speed the development of the interactive medium and the growth of all its businesses. It will provide an important new broadband distribution platform for AOL’s interactive services and drive subscriber growth through cross-marketing with Time Warner’s pre-eminent brands”… which doesn’t include the laundry list of growth opportunities captured in the remainder of the announcement covering everything from music to telephony.

Instead of delivering on these ambitious promises, the merger imploded, translating into about $100B in lost shareholder value. The new company was plagued by many issues such as: short-term thinking, bad technology, bungled product development, and a risk-averse culture more prone to imitation than innovation. Most importantly the vision and passion the deal champions Jerry Levin and Steve Case established in 2000 were not effectively translated and executed by their people.

Yes, there were external pressures such as regulators and Wall street that increased merger difficulties – but I believe it all comes back to a clear vision that sets the strategic direction that the rest of the organization can understand and execute against. To that point – AOL’s original vision was “to build a global medium as central to people’s lives as the telephone or television… and even more valuable”. The company accomplished this vision prior to the merger. Eventually they replaced the statement in 2006: “to serve the world’s most engaged community”, which is nondescript and applicable to many businesses.

Recently, Jerry Levin, former CEO of AOL-Time Warner, and Steve Case, co-founder of AOL were on CNBC reflecting on the merger (see the video below). Levin apologized for the merger, “I presided over the worst deal of the century… I’m really very sorry about the pain and suffering and loss this has caused.” Levin and Case’s observations included:

• Leaders need to be compassionate and understanding of the significant tension due to a merger’s disruptive nature and cultural differences
• AOL TW was to be a ‘supermarket’ but instead was a ‘mall’
• Vision is nothing without execution in which people are key
• Too much focus on internal politics and wall street instead of customer needs

Technorati Tags: Acquisition Strategy, acquisitions, AOL, business acquisitions, Capstone, David Braun, External Growth, failed acquisitions, Gretchen Johnson, M&A, M&A News, m-and-a, mergers, Mergers and Acquisitions, Time Warner

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

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

Over and over on this blog, I have strongly advocated external growth to complement organic growth.  Today the largest 500 non-financial American firms have nearly $1 Trillion in cash and short-term investments on their balance sheets.  That’s Trillion with a ‘T’! This represents roughly 9.8% of their assets.  What does that tell me?  Companies are continuing to hoard cash.

I believe this accumulation of cash will continue for some time because credit still remains scarce, CEOs are anxious about economic pressures and companies are unsure where government regulations are headed.  Given all of this, strategic buyers have a unique window of opportunity for the next 12-16 months to make bold moves.  My philosophy remains “If Not Now, When?”. You’ve seen us say it before.  I’m convinced that sound companies with strong balance sheets, capable management, and a solid plan for growth have an unprecedented opportunity to make strategic acquisitions.

Technorati Tags: Acquisition Strategy, acquisitions, Capstone, cash, David Braun, External Growth, M & A News Acquisition Strategy, M&A, m-and-a, mergers, Mergers and Acquisitions

On Friday, August 21, 2009, Capstone will be hosting a webinar on maximizing the time and effort put into due diligence in the acquisition process.

Due diligence has traditionally been seen as a “check the box”  exercise - you evaluate the strengths and weaknesses of a target, uncover liabilities and understand risk in order to determine whether to proceed with the acquisition.

While these are all still valid and necessary reasons, a new way of thinking about due diligence has come to the forefront.  Due diligence will allow you to find opportunities to boost the likelihood of success for a deal.  Due diligence can:

- Pave the way for a smoother integration
- Identify “stars” that will help the newly formed entity grow
- Craft a creative deal structure to allow a deal to flourish

Due diligence is about more than just looking for red flags and hammering the target for more and more information.

The webinar is free and open to the public.  There will be a a 45 minute presentation followed by a 15-minute question-and-answer session.

Date:  Friday, August 21, 2009
Time: 1:00 PM ET/ Noon CT/ 11:00 AM MT/ 10:00 AM PT

To register, please follow this link:

https://www2.gotomeeting.com/register/117587779

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, due diligence, External Growth, Integration, M&A, m-and-a, mergers, Mergers and Acquisitions, webinar

In another installment of our video series, I discuss what “Synergy” really means.  Synergy is a word that gets bandied around a lot in the world of M&A.  When discussing potential deals, companies often try to justify a mediocre deal by talking about all of the synergies that will result.  Really, though there are only two types of synergy - to find out what they are, watch the video:

What do you think?  Am I right? Or are there more types of synergy? Feel free to discuss below.

Technorati Tags: Acquisition Strategy, acquisitions, business acquisitions, Capstone, David Braun, External Growth, Integration, M&A, m-and-a, mergers, Mergers and Acquisitions, Synergy, video

There was an excellent profile in last weekend’s Wall Street Journal of Cisco Systems and its CEO, John Chambers. Cisco is a company that “gets it”.  In some of the most difficult economic conditions of our lifetime, Cisco is not hiding its head in the sand.  Here is Chambers’ philosophy:

Even in this downturn, we intend to be the most aggressive we’ve ever been.

That is saying something for Cisco.  Since Chambers took over as CEO in 1995, Cisco has been a bold acquirer.  As the article says:

Cisco’s growth plan has combined audacity in acquisitions and attacking new markets with strict, even ruthless control over costs.

The result of this growth plan?  I could lay it out in words, but you know that a picture says it better - look at Cisco’s performance against the major stock indices since 1990:

Cisco is represented by the blue line.

Pretty impressive.  Being aggressive during down times and constantly calibrating with targeted acquisitions have paid off big time for Cisco and its investors.

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