Acquisition Strategy

Credit unions and CUSOs are using their investing powers to be more innovative and entrepreneurial when it comes to technology and new products and services. Many are exploring co-investing with individuals and business founders who are looking for additional capital from credit unions. While these partnerships between credit union investors and individuals generate fresh new ideas, they sometimes face friction as the two cultures collide.

I had the opportunity to speak on this issue with Kirk Drake, CEO of Ongoing Operations and Brian Lauer, Partner at Messick, Lauer & Smith in the panel “Entrepreneurs as Co-Owners of CUSOs – Managing Different Business Styles and Expectationsat the 2017 NACUSO Network Conference in Orlando, Florida.

In a packed breakout session we discussed how credit unions and CUSOs should persuade individuals to work for their organization and how to build a bridge between two different perspectives. One of the most important things credit unions and CUSOs must do is recognize the asymmetry between a highly-regulated credit union environment and a swift, entrepreneurial culture. Recognizing these differences is the first step to understanding how to incentivize entrepreneurs not just from a financial standpoint, but from an emotional and strategic position so that you can grow your organization as a team.

Many are convinced that the buyer with the most money always wins the deal. Although many acquisitions by financial acquirers and strategic buyers are driven by the desire to grow revenue and the company’s bottom line, it is possible to win an acquisition without offering the most amount of money.

A successful acquisition is about finding the right equation for the seller, which includes, of course, financial compensation, as well as many other non-financial aspects including prestige, value, excitement, or strategic fit.

It can be difficult to visualize this concept, so let’s take a look at a recent example from the news. Amazon announced it would acquire Souq.com a Dubai-based internet retailer. While terms of the deal were not disclosed, Amazon reportedly paid between $650-750 million, beating out a competing offer for $800 million from Emaar Mall. So why would Souq sell to Amazon for a lower price?

From Amazon’s perspective, this deal makes a lot of sense because it will allow Amazon to enter into the Middle East while circumventing regulatory hurdles, the headache of building new infrastructure, and the cost of raising brand awareness. Souq.com is already a very popular in the Middle East where e-commerce is expanding among a growing young, tech-savvy population. Kuwait, Saudi Arabia and the UAE are the top markets for mobile penetration. In addition, Middle Easterners are willing to pay a 50-100% premium for Western products and brands from the US. The Souq acquisition will help with top-line and bottom-line growth.

So what’s in in for Souq? Why agree to a deal for less money?  The answer is Amazon’s experience and reputation. As one of the top global companies, Amazon has a large network, resources, and deep experience with e-commerce. Souq can leverage Amazon’s experience to continue growing.

It is also exciting to be acquired by a well-recognized brand and be a part of Amazon’s team. While we can’t know what the founder of Souq, Ronaldo Mouchawar, was thinking, we can safely assume emotion had some factor in the decision-making. Don’t completely forget about the human factor and emotions when it comes to M&A, especially when dealing with owners and privately-held businesses. In fact, understanding the owners motivations – excitement, family-members in the business, community pride, desire to leave a lasting legacy, risk aversion, or financial – is key to developing the right equation to persuade him or her to sell.

Photo Credit: Mike Mozart via Flickr cc

Think you can only acquire a for-sale company? Think again. Although it may seem impossible to buy a “not-for-sale” company, a company that is “not-for-sale” simply means it is not actively thinking about selling. However if the owner receives a compelling offer, they might change their mind. Here are four reasons why a not-for-sale acquisition can be better than a for-sale opportunity.

  1. Be proactive: Rather than reacting to whatever deals happen to come your way, you approach the prospects that offer the best fit with your company. This puts you in a better position for finding quality prospects that are aligned with your company.
  2. Maintain stealth in the marketplace: You can keep your acquisition search hidden from competitors. You also will gain access to acquisitions none of your competitors are aware of because the prospects you are looking at are not advertised. Another bonus: you can avoid auctions, which often drive up price,
  3. Maximize your options: If you only pursue for-sale acquisitions, you are ignoring a large number of profitable, viable acquisition prospects.
  4. Pick Winners: Companies that are not for sale are usually in good shape. Management teams are actively engaged in a successful business and are not looking for an exit. They may be happy to stay on (if you want them to) once the acquisition is complete.

As you begin your search for acquisition prospects, I encourage you to consider “not-for-sale” companies in addition to for-sale opportunities in order to increase your chances for a successful acquisition.

*A version of this post was originally published on AMA Playbook.

“We’ll know it when we see it,” many leaders say when asked to define their ideal acquisition. Unfortunately, this approach is a recipe for disaster. How will you know if it is the right company for acquisition based solely on your gut instinct? This is not how we, as business leaders, approach other decisions so why do so many approach M&A this way?

Think about it: You don’t hire whoever happens to knock on your front door asking for a position. Instead, you write a job description based on your company’s needs and measure potential candidates against the description. If you are looking for a sales person, you wouldn’t hire a finance expert instead, no matter how qualified they were.

If you search for acquisition candidates with no criteria in mind means there is a high chance you will be unfocused or ineffective. You also run the risk of acquiring the wrong company and fulfilling none of your growth goals if you rely too heavily on first impressions.

A better way to approach acquisitions requires a bit more upfront work, but leads to a higher rate of success. Before you even begin looking for acquisition candidates you should define your ideal acquisition markets and candidates using measurable, objective criteria. Pick four to six important criteria to focus on and develop quantifiable metrics for each one. Write these attributes down so everyone has a copy so that you all have an objective standard for measuring every market or prospect. This will prevent you from getting too emotionally attached to a company simply because it seems like a good idea. Instead, you will have to use data to prove (or disprove) the strategic fit.

Using criteria to make decisions doesn’t mean acquisition should be completely devoid of emotion. Naturally your experience will (and should) come into play when analyzing and evaluating each opportunity, but it should not be your only guide. Start with your ideal and then try to find a company that matches closely so that you can achieve your strategic growth goals.

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“I’m not interested in selling my business right now.”

“We already have a strategic plan in place.”

“We are already talking to another buyer.”

“Why should I listen to you? I get asked to sell all the time.”

“I may sell in a few years when my company has a higher value.”

“Who are you????”

“No.”

These are the typical responses owners give when contacted for the first time about selling their business. While it can be discouraging to hear “no,” it would be more surprising to hear an owner say, “Yes, I am ready and willing to sell you my business over the phone right now!” Experienced acquirers know that an owner’s initial “no,” is simply a knee-jerk reaction resulting from surprise more than anything else.

The majority of owners of privately-held businesses, especially those that are healthy and run well, are not operating their business with the intent of selling. They are focused on growth and delivering products and services to their customers. Just because someone is not currently thinking about selling does not mean that their company is not for sale. Click to continue reading on The M&A Growth Bulletin.

This article originally appeared in The M&A Growth Bulletin, Capstone’s quarterly newsletter that delivers essential guidance on growth through M&A along with tips and tactics drawn directly from successful transactions completed in the market. Subscribe today to read the current edition and receive The M&A Growth Bulletin every quarter.

You don’t have to “go big or go home” to successfully grow your company through M&A. A small, well-executed acquisition that targets a specific need can sometimes be more powerful than a multi-billion dollar consolidation. Let’s take a look at a recent example from the news.

Earlier this month, Conagra announced it would acquire Thanasi Foods out of Boulder, Colorado. Founded in 2003 by Justin “Duke” Havlick, Thanasi is a privately held company with less than $20 million in revenue and sells two products: Duke’s meat snacks and Bigs sunflower and pumpkin seeds.

On the other hand, Conagra is an $11.6 billion company with an established product portfolio which includes brands such as Marie Callender’s and Healthy Choice. So why is Conagra purchasing such a small acquisition? Conagra needs more SKUs, especially value added or “premium” products that will deepen its relationship with customers like Walmart, which is Conagra’s top customer.

Although Thanasi is a small company, its products already have some traction and customer approval in the marketplace. Duke’s and Bigs are sold in 45,000 retail locations and are in fast-growing segments. Depending on how you look at it, Duke’s and Bigs is a compliment or competitor to Conagra’s Slim Jims and David-branded seeds. Essentially Conagra is purchasing a form of proven R&D to run through their pipeline of customers on a larger scale.

Acquisitions don’t have to be huge to be significant. Especially in the middle market, a carefully planned, small, strategic deal can exponentially grow your business and help you reach your goals. Meaningful transactions are those that help your company become increasingly focused and effective, so don’t get too caught up in the numbers.

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“We did an acquisition about 15 years ago. It did not go well…I guess you could say we are still ‘recovering,’ the CEO of a family-owned business recently shared with me during a meeting.

She went on to explain there were a number of integration issues and other challenges that cropped up post-closing that the company was not prepared to handle. From payroll issues to disgruntled employees to operational challenges – the experience was “traumatic,” for the organization according to the CEO.

Fortunately, the company is in a better place today and is ready to explore new ways to grow. While leadership recognizes the potential of a strategic acquisition, because of their previous experience, they are, understandably, hesitant.

It’s not uncommon to have this reaction. But just because an acquisition didn’t work in the past, it doesn’t mean you have to abandon M&A as a tool for growth. You can learn from what went wrong last time and be successful when executing future deals.

There are many reasons deals fail from culture clashes, hidden liabilities, poor planning, or simply inadequate of expertise, but these issues point to one overarching reason for acquisition failure – lack of strategy. Alarmingly, many companies take on a reactive approach to acquisitions, buying whatever company comes their way without first developing a strategic plan. Not having a plan is a surefire way to fail.

In the case of our family-owned business, they decided to take on a strategic approach to M&A this time around. Unlike last time, where they adopted a “plan as you” approach to M&A, they dedicated serious resources to establishing a strategic plan for acquisition prior to even looking at companies. This included identifying potential integration challenges and developing a 100-day post-closing plan long before the deal closed to avoid the same issues as last time. With a firm foundation the company was able to identify the right opportunities for growth and execute a successful transaction.

If you are still suffering from the results of a failed acquisition, I encourage you to adopt a strategic approach right now. Gather your team together to review your growth options in light of your overall strategic vision. Then, you can determine your next steps whether its organic growth, external growth, minimizing costs, exiting a business, or doing nothing. With a strategy in place, you will avoid many pitfalls and maximize your chances for success.

It seems like 2017 will be a strong year for acquisitions. A new report highlights a number of factors that could drive activity this year including the record levels of cash held by private equity firms and a favorable lending environment for borrowers.

Potential changes to U.S. tax policy under the new administration could reduce the corporate tax rate and encourage companies to repatriate offshore cash to invest in acquisitions.

2016 was a year full of uncertainty, from Brexit to the U.S. presidential elections, but as the economic and political landscape stabilizes, business leaders are regaining their confidence. 80% of executives surveyed predict M&A activity will increase in 2017. These market conditions may be the right recipe for increased acquisitions, especially for companies facing poor organic growth prospects.

In the first quarter alone, a number of significant transactions have been announced including the owner of Burger King and Tim Horton’s acquiring Popeyes, Mars acquiring pet hospital company VCA, and Intel pushing into the self-driving car space by purchasing Mobileye. These deals will likely spur additional acquisitions as key players react to changing industry dynamics and competition.

While we don’t know if M&A in 2017 will match 2015’s record level, we can certainly expect an uptick in activity for the remainder of the year.

Photo credit: Igor Trepeshchenok / Barn Images 

3M, the maker of Post-it, will acquire Scott Safety from Johnson Controls for $2 billion to build up its safety division. This is the second largest acquisition for 3M after its purchase of Capital Safety, a maker of fall protection equipment such as harnesses, lanyards, and self-retracting lifelines, from KKR & Co. for $2.5 billion in 2015.

Scott Safety’s products include respiratory-protection products, thermal-imaging devices, and other products for firefighters and industrial workers. The company will become a part of 3M’s safety division, which accounts for 18% of the company’s sales in 2016 and is the second largest division.

3M is using acquisitions to boost slow growth in the US and to combat industry challenges in the consumer and electronic sector. In 2016, 3M executed a number of acquisitions and divestments as part of its realignment strategy. The company sold its temporary protective films business, safety prescription eyewear business, and pressurized polyurethane foam adhesives business. 3M also purchased Semfinder, a medical coding technology company.

Here are two lessons for leaders who are thinking about company growth.

1. Acquisitions can jumpstart growth.

When organic growth options such as, opening a new store or adding new products, fail to grow revenue significantly, it may be time to look at external growth. Strategic leaders evaluate shifting industry dynamics to anticipate future demand and then use acquisitions to reposition their companies to capture a share of the high-growth market. When completed, the acquisition of Scott Safety will add 1,500 employees, $570 million in revenue, and a slew of products immediately to 3M’s safety division.

2. Acquisition isn’t just about getting bigger.

Acquisition is truly about recalibrating your business and focusing on strategy. Although 3M is acquiring Scott Safety, the company also divested of a number of businesses in 2016 and is paring down from 40 business units to 25.

On the other hand, the seller, Johnson Control is also realigning their business with this divestment. “Consistent with our priority to focus the portfolio on our two core platforms of Buildings and Energy, we continue to execute on our strategic plan.” said Johnson Controls Chairman and CEO Alex Molinaroli.

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One of the most effective ways for strategic buyers to grow through acquisitions is to “take frequent small bites of the apple,” or to conduct a series of smaller, strategic acquisitions in order to achieve a growth goal. Even those these deals might not be as “exciting” as mergers between two huge competitors, they can be just as (or even more) impactful for an organization’s success.

A recent example of this approach is German chemical manufacturer Evonik, which is building its cosmetic ingredient business through acquisitions. On March 13, the company announced it will acquire cosmetic ingredient manufacturer Dr. Straetmans GmbH for $107 million. The deal is Evonik’s second in the cosmetic ingredient sector; last year, the company acquired Air Products and Chemical’s coatings and additive operations for $3.8 billion.

It is possible to achieve significant growth by executing smaller deals and sometimes an iterative process can be more effective than one sweeping change. Most of us have probably taken a class or read an article on leadership about achieving goals where a common suggestion is to break down a large goal into achievable steps. Executing a series of strategic acquisitions is similar. Each deal builds on the previous one, like a step in a staircase, bringing you closer and closer to your goal.

Change, even good change, can be difficult to process and many companies struggle when it comes to post-merger integration. This risk is greatly reduced with a small deal because it is easier to digest and there are fewer moving pieces. In between deals you have time to adjust, evaluate your newly merged company and determine when and how to pursue your next deal. This time of re-calibration between deals will help you build a strong foundation for achieving your dreams.

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There’s a myth that acquisitions are only executed by huge, publicly-traded, Fortune 500 companies, but that’s simply not the true. In reality, there are many acquisitions conducted by small and middle market firms that are private transactions and are not reported to the media.

There are many reasons to consider acquisitions, regardless of the size of your business. A smaller, highly focused acquisition can grow your company and be incredibly profitable. In fact, small transactions allow you to execute your strategy covertly and avoid alerting your competition to your growth strategy. With a small, strategic acquisition there is less of a risk of integration issues and acquisition failure because the deal is not transformative for the organization. At the same time, a small, strategic acquisition can fulfill a targeted growth need and positively impact a company’s long-term growth.

Another reason people don’t consider acquisitions is because they think they are too expensive. While acquisitions do require a significant amount of financial resources to execute, the cost of organic growth or doing nothing may be higher than the cost of M&A. When looking at the bigger picture, it may be more expensive to develop a new product on your own or take too much time. Companies often use acquisitions to move quickly and implement a ready-made solution. If you are concerned about cost, keep in mind there are ways to mitigate the price of a deal. Only you can determine if acquiring or building your own solution is best, but you should consider both options simultaneously.

Whether or not you decide to grow through external or organic growth, you should consider both as tools, regardless of the size of your company. For every company, unintentionally falling into the trap of doing nothing is dangerous. Innovation, either from external growth or through in-house development, is key to long-term success. Think about companies that lost their edge do to failure to innovate. Blockbuster didn’t adapt from DVD to streaming and lost out to Netflix and Redbox and the once dominant BlackBerry, which failed to compete with iPhone. The cost of unintentionally doing nothing can mean your services and products become obsolete, so make sure you consider your next steps with the future in mind.

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You do not need an M&A advisor to pursue acquisitions. You might think I’m crazy for saying this, after all, we are M&A advisors, but the truth is you can pursue acquisitions on your own. In fact, for those of you who are so inclined to take the do-it-yourself approach, I lay out a step-by-step process, the Roadmap to Acquisitions, in my book Successful Acquisitions and regularly provide tips and tricks for free on this blog and through my firm’s educational resource M&A U™.

That being said, there are many benefits to bringing on an experienced M&A advisor. Think of it this way: Technically, you do not need a CPA to do your taxes. Depending on your situation, you may be able to go through the paperwork, file your taxes on your own and hope you don’t get audited. Or, you could consult an experienced professional and rest easy, knowing the job will be done right.

The advantage of an M&A advisor is having an expert by your side for every step in the process. Unfortunately, especially if your company has never done an acquisition, it’s difficult to tell if you are missing any important steps until it’s too late. An experienced advisor will help you navigate the process and avoid making mistakes.

Here are five advantages of using a third party:

  1. Objective outsider to help evaluate decisions – Acquisitions can be emotional and as a third party, an M&A advisor can help facilitate discussions and resolve conflicting perspectives.
  2. Experienced market and company research team – In addition to accessing to multiple databases of industry information, a third party can speak directly to key industry players without giving away your interest in making an acquisition.
  3. Discreet approach to owners – One of the advantages of privately-held acquisitions is the ability to execute your strategy under the radar. An M&A advisor can approach companies – even competitors – on your behalf without exposing your plans to marketplace.
  4. Maintain negotiation momentum and overcome roadblocks – Negotiating during acquisitions is not about “winning,” it’s about understanding the motivators that will prompt an owner to sell. It takes experience to discover these underlying desires that will help move the deal forward.
  5. Ensure early preparation for success integration – When it comes to integration, experience has taught us that preparation begins very early in the process, well before the deal is consummated. With the help of an advisor, you can address integration issues early so that you successfully weather the challenging first 100 days of integration post-closing.

Does this sound familiar? You want to grow through acquisitions, but there are no good companies to acquire. While it may seem like there are absolutely zero acquisition prospects, usually that is not the case.

Many companies struggle to find acquisition prospects because they are focusing on only on industry partners, suppliers, or competitors they already have a relationship with. We call these companies the “usual suspects.” There’s nothing wrong with looking at the “usual suspects” for acquisition opportunities, but if you find you are hearing the same company names over and over again without getting any results, it may be time to try a new approach.

Here are four more ways to find quality acquisition prospects in addition the “usual suspects”:

  1. Market Research – In researching the market you will naturally uncover a few potential acquisition prospects. You will also have the advantage of gaining a deeper understanding of the market which will help you select the best companies to acquire, evaluate potential acquisition candidates, and negotiate with owners.
  2. Trade Shows / Associations – Both are an excellent source for finding many companies in your desired industry in a short amount of time. Walk the floor of a trade show and you’ll see dozens of companies all in one location and many trade associations also member companies listed on their website.
  3. Internal Input – Use the resources you already have. Your sales team is filled with folks who have their ear to the ground and are up-to-date on key players and new developments in the industry.
  4. For-sale Companies – Looking at for-sale companies is never a bad place to start your search. Just make sure you don’t limit yourself by only considering these opportunities. Including not-for-sale companies in your search will increase your chances for a successful acquisition. Remember, every company is for sale, for the right equation.

For more tips on finding companies to acquire join our webinar Building a Robust Pipeline of Acquisition Prospects on March 23.

After this webinar you will be able to:

  • Approach the search for the right acquisition prospect systematically
  • Understand effective research methods for identifying prospects
  • Develop criteria for your ideal acquisition prospect
  • Use tools for objective decision-making during the acquisition process

Building a Robust Pipeline of Acquisition Prospects

Date: Thursday, March 23, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available.

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Not finding the right company to acquire is the top challenge for middle market companies seeking to grow through mergers and acquisitions. According to Capstone’s survey of middle market executives, 28% noted lack of suitable companies as the strongest reason for not considering acquisitions as a tool for growth.

Finding the right company to acquire is critical to the success of a deal, especially for strategic acquirers who plan to hold onto the newly acquired business long-term.

The lack of targets may be because most leaders are only focusing on for-sale companies. Many wrongly assume that if an owner is not actively seeking a buyer, a there is no chance for a deal. This is simply not the case. Once you begin to consider not-for-sale acquisitions, the universe of options expands.

Pursuing not for-sale acquisitions allows you to take charge of your acquisition strategy and seek out the best companies to acquire rather than accepting whatever opportunity happens to come your way.

For many I realize the idea of pursuing not-for-sale deals can be intimidating, and many assume that if an owner is not actively selling their company that there is no chance for acquisition. This is simply not true. While searching for and approaching companies that aren’t seeking buyers requires a different approach, and more effort, than reacting to whatever happens to be for sale, there are some tricks to approaching these owners.

Finding an Owner’s “Hot Buttons”

One of these best practices is to find the owner’s “hot buttons” to determine what the right equation will be for them to consider selling. A “hot button” is any issue an owner would insist on addressing if they were to sell the company. Price might be one such “hot button” but it’s unlikely to be the only one. The owner may love his or her work, in which holding a position after the acquisition would be a priority. There may be a succession issue if the owner has family members in the company they want to take care of. The owner could have longstanding ties to the community—or may even be the biggest employer in town—and would want to ensure the business stays in the area.

Being informed about these “hot button” issues, and handling them sensitively, opens up the whole field of so-called “not-for-sale” companies.  Now, as you develop your acquisition strategy, you have far more choices, and much better chance of finding the company that truly matches your over-riding strategic goal.

Because approaching “not-for-sale” owners takes great skill, it often it makes sense to hire a third party expert who has experience in this work and is not perceived as any kind of competitive threat by the owner.  Your acquisition advisor can also help you tease out the precise equation that would prompt the owner to sell.

For more insights on middle market M&A, download our report State of Middle Market M&A 2017.

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The possibilities may be endless, but your resources are not. For many business owners with limited time and money, deciding which ideas to pursue can be a challenge. Here are three ways to prioritize your options for growth:

1. Start with your company vision

The best way to make sure you’re moving in the right direction is to take a step back from all of your ideas and begin by looking at your vision for your company. Who do you want to be as a company? When you have a clear picture of your goal in mind, it will be easier to visualize what steps you need to take in order to achieve it. Without a clear vision you could end up pursuing options that actually drag you in an opposite direction.

2. Use tools to stay objective

While it’s natural to be somewhat subjective, after all business growth is exciting, you don’t want to make decisions based on emotions alone. Try bringing objectivity into your decision-making process by using tools to evaluate and compare your options. When it comes to external, growth, we typically use the Market Criteria Matrix to evaluate the best markets for growth and the Prospect Criteria Matrix to evaluate acquisition prospects. This tool can be adapted to evaluate any opportunity for growth.

Keeping your vision in mind, develop about six key criteria of your ideal opportunity. Next, you develop metrics to quantify the criteria. For example, if one of your goals is to expand your operations to the West Coast, one of your criterion would be location and the metric could be located on the West Coast. Give each option a rating using a 1-10 scale and see how well the options compare to each other and to the criteria you’ve established.

3. Gather data

Making a decision without the proper information can be a big mistake. Conduct research to validate (or invalidate) your assumptions. You don’t have to uncover every granular detail, but it will be helpful to have an understanding of trends and how they will impact your market in the future. One of the best sources of information about the marketplace is your customers. Try identifying the needs and wants of current and future customers. It may even be as simple as conducting a customer survey or asking your sales department for input.

While it can be overwhelming to process through all your options for growth, the good news is that you have many options! Hopefully these three suggestions will help you organize your thoughts as you plan your next steps.

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Should your credit union acquire a bank? If you are looking for new ways to grow, acquiring a bank may be an option for your credit union.

Capstone is excited to host a webinar attorney Michael Bell, who pioneered this new approach and continues to help credit unions acquire banks. The webinar will cover the strategy and mechanics behind a credit union-bank merger as well as challenges and proactive growth opportunities for credit unions.

Seizing Your Opportunity for Growth: Exploring the  Credit Union–Bank Merger Trend with Expert Michael Bell

Date: March 9, 2017

Time: 1:00 PM / 12:00 PM EST

Michael Bell is an attorney at Howard & Howard and a leading advisor to credit unions and national financial institutions seeking non-organic growth, strategic advice. In 2011, Michael completed the first ever purchase of a bank by a credit union. Michael continues advising credit unions in this area and has completed every credit union purchase of a bank to date. He is a “go-to” legal advisor in this area.

Founded in 1995, Capstone is a leading advisory firm focused on helping companies grow through proactive, strategic growth programs and mergers and acquisitions. As the leaders in strategic mergers and acquisitions for CUSOs, we have helped numerous credit union and CUSO leaders develop, evaluate, and implement initiatives for growth. Learn more at www.CapstoneStrategic.com.

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Finding a list of companies to acquire is exciting! You start thinking about all the possibilities and how the deal will grow your business exponentially. But before you move forward with any of these candidates, take a step back and make sure you are looking at companies in the right markets.

What are the “right markets?” Markets that have a healthy, stable demand and are growing. After all the primary driver for acquisitions is to help your company grow. Without researching markets first, you risk acquiring a company in a stagnant or declining market. Although the company may have strong financials today, if there’s no demand in the marketplace, your acquisition won’t deliver the expected returns on growth in the future. Without first selecting a market, you have reason to beware of even the most tempting buying opportunities.

Finding the right market begins by defining the market using geography, verticals or another relevant factor, and by developing market criteria to aid in your decision-making. Your research will begin with a broad sweep and become progressively narrower as you learn more about the market.  Your market criteria will help you objectively evaluate and compare the markets against your strategic rationale for acquisition.

Researching markets first not only helps you avoid acquiring a bad company, it helps you identify the best companies to buy. By conducting market research, you will gain a better understanding of the market, which will help you evaluate acquisition prospects and negotiate with owners as you proceed with the acquisition process.

Learn more about the “markets first” approach in our upcoming webinar How to Pick Top-Notch Markets.

After this webinar you will be able to:

  • Understand the market-driven process
  • Explain market criteria (market growth and size, competitive dynamics, barriers to entry) and how to use them to evaluate a market or segment
  • Describe effective secondary & primary market research techniques
  • Explain the triangulation technique to obtain the most relevant information for accurate decision-making
  • Develop tools to objectively compare and contrast markets

How to Pick Top-Notch Markets

Date: Thursday, February 23, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available,

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Sears, which was once a thriving department store, is dying a slow death and the company is grasping for cash in order to stay afloat. Last year, Sears borrowed $200 million from CEO Eddie Lampert’s hedge fund and most recently Sears agreed to sell Craftsman to Stanley Black & Decker. Under the terms of the acquisition Sears will get a cash payment of $525 million followed by a payment of $250 million after three years. It will also receive royalties from the sales for Craftsman for the next 15 years. Stanley Black & Decker is focused on strengthening its position in the tool market. In October 2016 the company announced it would acquire the tool business of Newell Brands, which includes Irwin, Lenox and Hilmor, for $1.95 billion.

From Success to Struggle

So how did Sears go from successful department store to its current situation? Of course many retailers have been hit hard – not just Sears. Faced with competition from online stores, traditional retailers are struggling to keep up. Macy’s is in the process of closing 100 stores in order to cut costs and Walmart is now offering free two-day shipping when shoppers spend at least $35 in order to compete with Amazon.

But, we can’t blame everything on competition. Competition is the very nature of business and there will always be changes to in the industry, which are beyond your control. It’s up to leaders to anticipate these changes and proactively develop a strategy in order to survive and even thrive when times are tough. Instead, Sears did nothing. Sears is not the only company to fall into this “strategy.” When things are going well, or at least satisfactorily, it’s easy to get comfortable and keep doing the same thing.

However, the result of doing nothing can be disastrous for your business. Think about Montgomery Ward, which was the Amazon of the 1800s, accepting and delivering orders by mail. But now the company doesn’t even exist. If Sears wants to avoid the same fate, it will need to be more innovative to fix its long term growth problems. Getting cash now is a temporary solution and it will be interesting to see what steps the company takes once they get the cash.

Are You Doing Nothing?

For business leaders today, I urge you to take a serious look at your business and marketplace. Don’t let yourself get too comfortable or get too caught up in the day-to-day tasks that you neglect the bigger picture. Any company that doesn’t remain on its toes can succumb to doing nothing.

No matter your current situation, you should always think about what could happen next and question your assumptions. Just because your plan works now, doesn’t mean it will work in the future. Where might the market be headed to tomorrow? In five years? Set aside time to look at your business strategy to make sure you answer these questions.

Photo credit: Mike Mozart via Flickr cc

Many company owners and executives know that M&A could hugely accelerate their growth. But they hold back for several common reasons. Let’s take a look.

1. “There Are No Suitable Companies to Buy”

You’re probably right—almost. There are no suitable companies for sale. That does NOT mean there are no great companies to buy. You just have to look beyond those that are marked “for sale”. Generally, it’s much better to pursue not-for-sale companies, for a host of reasons. The company is less likely to have problems; you won’t be competing with other buyers; and no one need know about the transaction until it’s complete.

2. “If a Company Is Not for Sale, I Can’t Buy It”

Every company is for sale… for the right equation. Note the word here is “equation” not “price”. Many owners would be glad to sell if they could find a buyer with the right vision, and who understands their unique (sometimes very personal) needs — for example to look after family members employed by the firm, or keep the company brand unchanged, or provide certain special benefits with the deal. Click to continue reading on The M&A Growth Bulletin.

This article originally appeared in The M&A Growth Bulletin, Capstone’s quarterly newsletter that delivers essential guidance on growth through M&A along with tips and tactics drawn directly from successful transactions completed in the market. Subscribe today to read the current edition and receive The M&A Growth Bulletin every quarter.

Thanks to advances in science and healthcare, people are living longer than ever. As they age, demand for healthcare products and services increases. One of the most significant demographic trends impacting healthcare is the aging baby boomer generation. As about 75 million American baby boomers grow older, demand for healthcare continue to will increase rapidly.

Today, companies are taking note of these market changes and using acquisitions to quickly capitalize on this opportunity for growth.

Just this week eyeglass giants Luxottica and Essilor announced a merger in order to take advantage of ideal market conditions. The acquisition will allow the company to benefit from strong demand in the eyeglass market that is only expected to grow.

In the heart disease sector, medical device companies are also acquiring in order to meet the growing needs of patients. Medtronic acquired HeartWare International for $1.1 billion, Teleflex acquired Vascular Solutions for $1 billion and Edwards Lifesciences acquired Valtech Cardio for $690 million. In this sector there is “huge unmet needs” according to Edwards Lifesciences CEO Michael Mussallem.

The primary driver of these acquisitions is swiftly meeting demand. Rather than waiting to build their own solutions, with acquisitions companies can rapidly take advantage of market conditions today and position themselves for future growth.

The ability to meet future demand is key to the success of any company. Take a look at your own industry and market. Where is demand going?

Photo credit: NEC Corporation of America via Flickr cc