Mergers and Acquisitions

Negotiating for an acquisition is quite a bit different than any other type of negotiation. Unlike a debate or argument, where your goal is to soundly best the opposite side no matter the cost, in acquisition, you must achieve your goal while maintaining a positive relationship with the opposite side. This is because you’ll likely be working alongside the opposite party once the deal closes.

Especially in the case of strategic, not-for-sale acquisitions, the buyer will often keep the owner on at least for another one to two years – maybe even longer – to continue growing the business. If both sides hate each other, it’s unlikely the deal will work out in the long-term. You don’t want to have a strained relationship with the seller who may be integral to the newly merged company’s success. So how do you get what you want without souring a relationship?

Pick Your Battles Wisely

One of the tricks is to realize that not every issue is created equally, and it’s not necessary to argue over every last detail. Before you begin negotiating, you should understand your desired outcome and establish which items are essential and which ones you are willing to be flexible on. This way you compromise on certain issues and save your battles for the nonnegotiable items.

An Open Dialogue

A policy of openness and honesty is always helpful for fostering a relationship. While you may be tempted to storm off to “send a message” when discussions get heated, this rarely furthers discussion and only helps to create a discontent situation. Instead, try asking questions when you don’t agree or understand the seller’s perspective.

Hard-nosed negotiation tactics rarely work well in not-for-sale acquisitions. We’re not suggesting that you compromise your position by any means, but it’s important to think about the big picture and pick your battles wisely. Experienced strategic acquirers know negotiations are about more than beating the seller into submission. After all, the goal of acquisition is not to “win” the negotiation, but to put together a successful deal.

Learn more about negotiation for M&A in our upcoming webinar “Successful Negotiation Tactics” on Thursday, June 8, 2017.

After completing this webinar, you will be able to:

  • Explain the steps in building a negotiation platform
  • Describe effective tactics for getting what you want in a deal while protecting the relationship with the prospect
  • Detail how and when to bring legal counsel to the negotiating table
  • Outline a strategy to stake out three important details of any acquisition: Terms, Timing and Talent
  • Develop methods for broaching the issue of price and avoiding negotiation in circles

Successful Negotiation Tactics

Date: Thursday, June 8, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available.

Photo Credit: U.S. Department of Agriculture via Flickr, Public Domain, Modified by Capstone

 

From the somewhat plausible to the downright outrageous, rumors abound whenever a transaction is announced. While some rumors may be innocuous, unfortunately others may have lasting, damaging effects on your company and employee morale so it’s important to quickly put a stop to them.

Here are three practical steps to kill gossip and reduce confusion.

1. Communicate Early

Of course the best way to stop rumors from spreading is to prevent them in the first place. On day one of the acquisition, publish and distribute your 100-Day Plan, your integration program for the newly merged company, so that employees understand what to expect including changes to benefits, payroll, and operations. No one likes being left in the dark and in an information vacuum people will likely imagine the worst. You don’t have to share every last detail of the deal, but you should let employees how they will be affected by the transaction.

2. Set up an Anonymous Hotline

A toll-free hotline or an online or physical question box, is a great way for employees to anonymously voice their frustrations, concerns, and questions without fear of repercussions. You’ll also be able to answer relevant questions rather than allowing employees to fill in the blanks on their own or through the grapevine.

3. Be Honest

Don’t lie. This simple principle most of us learn as children is vital to establishing and maintaining trust in a company. The truth will come out eventually and the consequences of lying will be worse than if you had told the truth in the first place. Although it might be bad news, it’s best to rip the band aid off quickly. We once had a buyer tell an entire plant they were losing their jobs because the buyer was shutting the factory down as a result of the acquisition. Of course people were upset, but they respect our client’s honesty and had ample time to plan next steps in their career rather than being blindsided.

Change is hard, but by communicating early, addressing questions, and remaining honest, you can prevent rumors from spreading after an acquisition.

For more advice on integration, download our special report “Planning for Integration – Begin at the Beginning.”

Verizon will acquire Straight Path Communications for $3.1 billion, beating out AT&T’s initial offer of $1.25 billion. The primary driver for the deal is accessing Straight Path’s millimeter wave spectrum which will be key to building a faster 5G network.

Disruptive technology and evolving consumer habits are reshaping the telecommunications industry at a rapid pace and both Verizon and AT&T have used acquisitions to stay ahead of the curve. AT&T recently acquired Time Warner for $85 billion to gain access to its content including HBO and CNN and Verizon acquired Yahoo! for $4.83 billion to boost its digital ad business.

Consumers are dropping landlines and cable TV and moving toward online streaming, especially on mobile devices. Social media has also reshaped where viewers get information and entertainment and media companies are struggling to adapt. For Verizon, using acquisition in along with organic growth, will help the company build an infrastructure to stay relevant with consumers. A 5G network will have higher speeds and greater capacity to keep up with downloads, video streaming, and other smart devices like Alexa, Google Home, or even automated vehicles. Companies that can anticipate and capture future consumer demand will remain successful and continue to grow, while others will be left behind.

Leaders in all industries should be aware of this dynamic and consider capturing future customer demand as a major driver for strategic growth. This means giving customers what they need and also what they don’t know they need. Amazon does an excellent job of this by suggesting items in their follow up emails base on strong algorithms. Think about how you can apply this principle to your current customers and your potential future customers and how you will go about fulfilling their needs.

Photo Credit: Mike Mozart via Flickr cc

Last week the Wall Street Journal hosted the Middle Market Network to discuss issues relevant to middle market firms in the US. The good news is that middle market companies are getting healthier. With an increase in M&A activity and a boom in the construction industry, middle market businesses are growing and CEO confidence is high.

However, middle market companies still face challenges due to the global economic environment, disruption from technology, and industry and demographic shifts. Below are some of the issues that were discussed along with our commentary:

1. M&A

Middle market activity in 2016 was strong and we can expect robust activity to continue. Debt financing is still relatively inexpensive and the prospect of tax reform is also an incentive for deals. The demographic shift with baby boomers entering retirement and selling their firms also continues to drive activity.

2. Staffing

About half of middle market firms say a lack of talent at all levels impedes growth, according to Thomas Stewart of the National Center for the Middle Market.

Once recruited, middle market companies also struggle to keep employee engaged and satisfied on the job. Stewart suggests on the job training and collaboration with higher education so students learn the skills necessary for joining the workforce.

Another way middle market companies can fill this gap is by acquiring another company for key employees. Also known as an “acqui-hire,” this practice is commonly seen with technology startups, but can be applied to organizations of any size. In fact, identifying “star employees” is an essential part of due diligence.

3. Succession planning

Many middle market businesses have no plan for succession and those that do often fail to execute them.

Succession plans must be developed long before an owner exits in order to ensure the longevity of a company. It takes time to identify and cultivate individuals that can lead the company. Business owners should consider their goals and if anyone is capable and ready to take over. When no succession plan has been put in place, selling can also be option. For strategic acquirers, this is an opportunity to develop a persuasive offer for the company to sell to you. Determine what factors including, price and personal drivers would make selling to you more attractive how it will meet the owner’s goals.

4. Technology

Automation and technology are here to stay and middle market firms need to grasp this reality and act on it. Unlike large corporations who have the money to invest in the latest technology, many middle market companies have not embraced this change either due to lack of resources of fear from works that they will lose their jobs to robots. Marco Annunziata, GE’s Chief Economist, had a few interesting comments, noting “There will always be a human component” to technology. Whether or not this is true, technology has and will continue to dramatically change business.

Cybersecurity is another major concern and only 45% of middle market companies have an up-to-date defense plan. As the world becomes more digital, many companies find they are ill-equipped to deal with data breaches and the threat of hackers. Middle market companies may think cyberattacks only happen to large corporations like Target and Yahoo!, but the reality is no business is too small for hackers to target.

5. Healthcare

Changes in healthcare policy is a major concern for middle market businesses. 74% of firms attending said it would affect their business. With so much uncertainty, navigating the changes and planning for the future has become increasingly difficult.

 

Due diligence is more than just hammering away at a company to find out everything that might be wrong with it. It is about taking a focused approach throughout the acquisition process to uncover key points that will help you methodically evaluate a company to make sure it is the right fit.

Traditionally, due diligence takes place fairly late in the acquisition process, and is focused on rooting out the weaknesses of the target company. You are looking to uncover liabilities and understand the risk that comes with them. This kind of cautionary analysis is certainly an important milestone, and it can allow you to renegotiate the terms of the deal based on your findings. Due diligence in the traditional sense has also been a way to give yourself cover if problems that may arise later.

However, due diligence at its best means far more than just ferreting out hidden liabilities. If you follow recent thinking in M&A, due diligence is equally important as a tool to uncover concealed opportunities.  When you adopt this new perspective, you won’t be waiting until late in the acquisition process: you’ll be conducting due diligence right from the start. This new approach will help ensure thorough due diligence is conducted in order to maximize the success of your acquisition.

Learn more in our webinar A New Thinking on Due Diligence.

After this webinar you will be able to:

  • Describe how to organize due diligence to maximize efficiency and get the information you need to move the deal forward
  • Define what items to look for by key functional areas (sales, marketing, HR, IT, etc.), including financial due diligence
  • Explain how items uncovered during due diligence can affect deal structure and terms
  • Utilize tools to organize due diligence findings

A New Thinking on Due Diligence

Date: Tuesday, May 16, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available.

Photo Credit: Justin Baeder via Flickr cc

Price is often the number one focus in mergers and acquisitions and everyone is eager to get down to the numbers.

However, as you might expect, buyers and sellers have very different expectations on price, which can lead to friction between the two parties. On the one hand, most sellers plan to offer their business to the highest bidder while buyers are looking for a cheap deal. Given the opposite viewpoints, it can be difficult to broach the issue of price and come to an agreement.

The best way to bridge this gap is to make sure you don’t focus on price as a primary driver for the acquisition. Before you even begin talking about dollars and cents, you should make sure the deal makes sense. Initially you should communicate the strategic value of why an acquisition between your two companies makes sense. This is a critical step, especially when approaching owners of not-for-sale companies. Aligning your vision with the owner’s vision prior to even discussion the details of a potential deal (such as price or deal structure) is paramount.

Once you’ve achieved strategic alignment and you begin negotiations, you must think about what you can offer an owner in addition to price that will convince him or her to sell to you. Money is a strong motivator, but it’s not the only motivator. As a buyer, you must identify the nonfinancial factors in addition to price that will motivate an owner to sell. Understanding the owner’s psychology is key to building a mutually beneficial deal.

Owners do sell their businesses for many reasons other than high price including:

  • Age – They may want to retire and are burned out
  • Family – They may have no heir to take over the business or their spouse may be nagging them to retire
  • Insecurity and risk – Selling now while the business is performing well may mitigate their risk
  • Excitement – They simply are excited to be considered for acquisition, because of the prestige or a possible financial windfall

Achieving strategic alignment before discussing price as well as identifying the issues that matter the most to the owner can help you bridge the gap between your number and theirs. When you approach owners with a complete understanding of all the different factors that are important to them – age, community, family, financial, and risk – you increase your chances of building a successful acquisition.

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.

M&A activity has been trending upward in the last year and half to two years. There was a particular uplift in 2015 which reached the record-breaking value of $4.3 trillion worldwide. Some of that was fear-based because of what was going to happen with capital gain rates so many deals were completed in the latter half of 2015. Although activity dropped in 2016, it was still one of the most active years in the past ten years.

So far in 2017, average deal size is up and the number of deals is down for worldwide M&A activity. According to Reuters data, global M&A value reached $778 billion, increasing 12% while the number of deals decreased reached 11,441, a 9% decrease when compared to 1Q 2016. In the US deal value rose by 5% and the number of deals rose by 20%.

Middle Market Opportunity

Globally, bigger deals are back in vogue, and M&A is still being driven by strategic buyers rather than financial buyers. Large companies now have more confidence in deploying cash to execute these large transactions. However, not all of these large acquisitions will stick. There may be some “corporate indigestion” after taking such large bites and there will likely be some seeds and bones they will end up having to spit out in the form of spinoffs or divestments. That creates challenges and opportunities for the middle market companies who have the chance to fill some of those gaps.

M&A Outlook

In general from everything we are seeing right now, we expect activity will be robust for the next 12 months through the end of the 1Q 2018 , especially with the potential for tax reform related to repatriation of foreign cash. Leaders should anticipate a wave of activity from competitors, customers and suppliers and be prepared to handle changing industry dynamics. Strategic buyers should expect more competition from private equity groups as interest rates rise and PE groups become more active.

Click on the infographic for a closer look at M&A in the first quarter of 2017.

M&A Update 1Q 2017 - Capstone Strategic

Feature Photo Credit: Barn Images, Infographic by Capstone Strategic, Inc.

JAB Holding Company announced it would acquire Panera Bread for $7.5 billion to further its presence in the US fast-casual restaurant market. The transaction is expected to close in Q3 2017. The acquisition also gives JAB access to Panera’s experienced management. Chief Executive Ron Shaich and the management team will continue leading Panera after the deal is finalized.

JAB is a European family business that has acquired a number of US brands since 2012, including:

Competing with Starbucks

JAB may begin serving Peet’s and Caribou coffees in Panera’s 2,000 restaurants in order to compete with Starbucks, the leading coffee brand.

Although Panera and Starbucks both sell coffee, teas and food,  Panera is best known for its relatively healthy soups, sandwiches and salads while Starbucks is best known for its premium coffee and teas.

While Starbucks is unquestioningly the dominant player in the US for coffee and tea, when it comes to food, Panera has Starbucks beat. When customers want a healthy, inexpensive lunch they think of going to Panera, not Starbucks, for soups, salads, and sandwiches.

“Panera’s food will always be better than what Starbucks can offer. Starbucks is not designed to offer that high-end food. They don’t have the kitchens,” says analyst Peter Saleh.

It will be interesting to see if this acquisition affects Starbucks and how the company reacts. Will they acquire a company to beef up their food? Or will they double down on their drink offerings? The company acquired Teavana in 2012 for $620 million in cash in order to diversify its products.

The Advantages of Privately-held Companies

In addition, Starbuck still faces the pressure of being a publicly traded company while Panera will be able to go private with this deal. In fact, going private was one of the drivers for this deal.

While launching an IPO provides capital that can fuel a company’s growth, there are also drawbacks to going. Public companies must answer to shareholders, spend time on SEC filings, and announce their strategic growth plans to the public, which includes their competitors.

On the other hand, privately held companies are able to focus on long-term growth rather than quarterly earnings reports. They can also be more discreet in executing their strategic plans.  Be under the radar with strategic growth plans.

Ron Shaich, Panera’s CEO put it this way:

“For the last 20 years, I’ve spent 20 percent of my time telling people what we’ve done to grow and another 20 percent of my time telling people what we’re going to do to grow. I won’t have to do that anymore.”

Photo credit: Mike Mozart via Flickr cc

“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.

Owners are usually skeptical or defensive when asked about selling their “not-for-sale” company. In fact, many will hang up or refuse to consider your offer. If you do manage to break through and get the owner to agree to a first meeting, your job is to put them at ease, dissuade fears and communicate the strategic value of an acquisition. A positive first meeting is essential to executing a successful deal.

One of the best ways to make an owner comfortable is to meet on their terms. Let the owner pick the restaurant and meeting location. This has a number of benefits: the owner will naturally be more comfortable and open to discussions in a familiar settings and you will also learn a great deal about the owner and their personality.

Prior to the meeting make sure you do your homework and have an understanding of the seller as both a business owner and as a person so that you can discuss their hobbies, family or any other topics they enjoy during the first meeting.

Most importantly, you should behave as if you were their guest by being respectful and listening. You do not want to come across as a hostile acquirer who wants to take over their business, but rather a potential partner that will bring mutual success to both companies.

Learn more about contacting owners in our webinar “The First Date”: Contacting Owners and Successful First Meetings on April 20.

After this webinar you will be able to:

  • Explain what typically motivates owners to sell
  • Describe effective contact strategies for getting and keeping owners on the phone
  • Detail how to use market and prospect research to gain credibility with an owner
  • Outline steps for a successful first face-to-face visit with an owner
  • Develop a persuasive first meeting presentation to highlight the strategic fit between your company and the prospect

“The First Date”: Contacting Owners and Successful First Meeting

Date: Thursday, April 20, 2017

Time: 1:00 PM – 2:00 PM EST

CPE credit is available.

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.

Photo Credit: Dean Hochman via Flickr cc

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.

Photo Credit: patchattack via Flickr cc

The media industry is going through a wave of consolidation as traditional players try to adjust to changing consumer habits. Demand for traditional media like print newspapers, cable TV, magazines, and landline phones, has decreased as streaming, mobile and digital media becomes more popular. As this trend continues, businesses will continue acquiring to capture consumers, build economies of scale and monetize content in order to stay profitable and grow. Here are three interesting transactions in the telecommunications, media and entertainment sector.

AT&T to Acquire Time Warner

AT&T plans to acquire Time Warner for $85 billion in one of the biggest media acquisitions in history. The telecommunications provider is eager to get its hands on Time Warner’s popular channels, such as HBO and CNN, in order to compete with rival Verizon, which recently acquired AOL and is in the process of acquiring Yahoo!. Time Warner plans to sell Atlanta broadcast stations to Meredith Corp in order avoid an antitrust review.

Sprint Acquires a 33% Stake in Tidal

Sprint acquired a 33% stake in Tidal, an online music streaming service owned by rapper Jay Z. By pairing Sprint’s pipeline of mobile phone customers with Tidal’s music and video content, the companies can be more powerful and reach more consumers.

In some ways this deal is a realization of the infamous Time Warner – AOL deal where they tried to leverage AOL’s infrastructure to distribute Time Warner’s content. While that deal is largely considered a failure, times have changed and Sprint and Tidal have a chance to get the integration right. While Time Warner and AOL tried a “merger of equals,” Sprint has acquired a minority investment in Tidal for $200 million.

Hollywood Reporter – Billboard Media Purchases Music Brands from SpinMedia

The Hollywood Reporter-Billboard Media Group will acquire four brands, Spin, Vibe, Steroegum, and Death and Taxes, from SpinMedia in order to establish the largest music brand by digital traffic, social reach and audience share. The Hollywood Reporter – Billboard Media Group’s strategic rationale is to reach millennials and aggressively enter into the video market.

I was recently interviewed about this deal in The Street:

“One of the challenges in today’s media environment is how do you remain relevant, so by combining these business brands and in particular by focusing on the music space, I think strategically the deal makes sense.”

As technology advances and consumer behavior continues to evolve, media companies will continue acquiring in order to stay relevant and most importantly, profitable.

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.

Photo credit: Kate Ter Haar via Flickr cc

Capstone Strategic’s survey of middle market executives shows most see the same (43%) or growing (31%) M&A activity in their industry. 47% are pursuing M&A in order to access new markets.

Capstone Strategic, the leading M&A advisory firm for the middle market, surveyed middle market executives from multiple industries on their growth and M&A experience in 2016 and their outlook for 2017. The survey was conducted in December 2016 and followed previous annual surveys of the middle market.

M&A activity across the board is mostly seen as the same (43%) or growing (31%).

Looking forward, our respondents are evenly split on whether or not they will pursue M&A in 2017. 35% are less than 50% likely to execute acquisitions and 35% are more than 50% likely. The top driver for pursuing M&A this year is access to new markets (47%).

As for obstacles to M&A, time and attention demanded by the process is the top barrier to pursuing acquisitions in 2017 (25%) while the most common reason for not considering M&A as a tool for growth is lack of appropriate target companies (28%).

The overall growth picture is improving. Those reporting modest growth rose from 58% in 2015 to 67% in 2016 and those reporting high growth grew from 11% in 2015 to 13% in 2016. Those reporting contraction shrunk from 9% in 2015 to 5% in 2016.

The business environment is seen by most in a positive light, with the majority reporting the same (50%) or an improved (35%) environment for growth. Compared to 2015, fewer executives saw a worsening environment for growth (8% compared to 13%).

Capstone’s CEO David Braun said: “The survey confirmed that 2016 remained an active year for middle market mergers and acquisitions and looking ahead, we believe we’ll see begin to see a renewed interest in M&A activity due to pent up demand and supply in the marketplace. 2017 presents a unique opportunity for companies that decide to execute strategic acquisitions.”

The full survey, State of Middle Market M&A 2017, can be viewed by clicking here.

 Feature Photo credit: dan Chmill via Flickr cc

Burgers, coffee and fried chicken will soon be under one roof. Restaurant Brands International Inc., the parent company of Burger King and Tim Hortons is acquiring Popeyes for $1.8 billion. The deal is expected to close in April.

Restaurant Brands hopes to use its global reach to expand Popeyes restaurants internationally. Currently, Popeyes, which primarily sells fried chicken, has over 2,000 restaurants worldwide with 1,600 located in the U.S. Popeyes revenue in 2015 was $259 million.

3G Capital, a Brazilian private equity firm, owns a 43% stake in Restaurant Brands, and has orchestrated multiple acquisitions of U.S. consumer companies, including Burger King’s acquisition of Tim Hortons in 2014 which formed Restaurant Brands, and the Kraft – Heinz merger in 2015. Earlier this week Kraft – Heinz attempted to acquire Unilever for $143 billion but was rejected. 3G Capital tends to “squeeze” profits out of its acquisitions through cost cutting and leveraging economies of scale. The real question this time will be if 3G can grow Popeyes into an international brand to rival the most dominant chicken fast food restaurants, which include Chick-fil-A, which is privately owned, and KFC, which is owned by Yum! Brands Inc.

Photo credit: Mike Mozart via Flickr cc