M & A News

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.

 

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

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

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

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

We usually think acquirers are big, multinational companies that gobble up their smaller competitors. However, that’s not always the case. Hudson’s Bay, which has a market value of $1.5 billion, is interested in acquiring Macy’s, which has a market value of $9.4 billion.

This transaction challenges common perceptions about acquirers and sellers and demonstrates that for the right strategic reasons, acquisition can be used as a growth tool by any company. While a smaller company acquiring a larger one is not the norm, it does happen. And, in this case, Hudson’s Bay could use Macy’s to expand its retail presence in the U.S. with another well-known department store. It would be difficult, if not impossible, for Hudson’s Bay to build up the reputation and name brand of Macy’s organically.

Hudson’s Bay, headquartered in Toronto, is an active acquirer and has a history of success in growing struggling retailers and optimizing value from its real estate. It acquired its affiliate Lord & Taylor in 2012 and Saks’s Fifth Avenue in for $2.4 billion in 2013. One year later, the Manhattan Saks Fifth Avenue store was valued at $3.7 billion. Hudson’s Bay has also made other acquisitions including German retailer Galeria Kaufhof for $2.8 billion in 2015 and Gilt Groupe for $250 million in 2016.

It will be interested to see how the transaction is structured and how Hudson’s Bay plans to tackle the challenges Macy’s is facing. Macy’s, like many traditional retailers, is struggling to keep up with market changes. The store is currently in the process of shutting down 100 stores and is planning to cut 10,000 jobs after facing disappointing fourth quarter sales. Perhaps an acquisition will save Macy’s? Only time will tell.

If you are thinking about growing your business, I encourage you to consider strategic acquisitions. Despite what you may think, there are many more options than just a large company acquiring 100% of a smaller company. I hope the example of Hudson’s Bay and Macy’s helps you gain a better understanding of what options might be available for you.

Learn more! Download the whitepaper Nine Pathways of External Growth.

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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.

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Mars, the maker of M&Ms and Snickers, will acquire VCA, a veterinary company, for $7.7 billion. VCA owns about 800 animal hospitals a lab business and dog day care franchises and has about $ 2 billion in revenue.

Although it may seem strange for a candy company to acquire a pet company, Mars already owns 39 petcare brands including IAMS, Pedigree and Whiskas and the acquisition will make the petcare division the company’s largest. The deal also makes sense for Mars’ long-term growth. The company, like many packaged good companies, is facing declining sales as many consumers today prefer healthy, fresh foods over packaged goods. While the CPG market may be in decline, fortunately, the petcare market is growing. In 2015, $35 billion were spent on vet care in the U.S.

Identify the Right Market for Growth

The transaction illustrates how finding the right market for growth can set you up for long-term success. For Mars, the acquisition of VCA is an opportunity to capitalize on a booming sector.

Many companies, when pursuing mergers and acquisitions think about a list of companies to buy and don’t spend much time analyzing the market. Unfortunately, this may mean acquiring a company that despite being a winner in today, is in a declining market.

Take the time to conduct a market analysis to explore the best opportunities for your company.  When faced with stagnation or contraction in your current market, you can use strategic acquisitions to pivot into a new high-growth market to ensure your long-term success.

What Business Are You Really In?

Another lesson from this transaction is the importance of really understanding your business. It’s easy to go with the most obvious choice when defining our business. If Mars simply stopped short and said “we are a candy company,” this deal would never have been executed. What’s worse, Mars could be facing serious challenges since demand for packaged goods is declining.

It’s important to take a step back and look at the big picture when you think about growing your business. What is your business really about? Don’t understate the power of this simple question. Your answer will impact the trajectory of growth you choose.

Photo credit: Leonid Mamchenkov via Flickr cc

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

Global M&A reached $3.7 trillion in 2016, dropping 16%, and the number of deals increased slightly by 1% when compared to last year. While 2016 did not match 2015’s record-levels, activity was still robust. Compared to 2014, activity increased by 5%.

Activity in the fourth quarter reached $1.2 trillion with 13,504 deals announced, a 50% increase in deal value and 18% increase in the number of deals when compared to 3Q 2016. This year, there were a number of interesting deals to note, including the AT&T’s acquisition of Time Warner transactionVerizon’s deal with Yahoo, and GE Oil and Gas combining with Baker Hughes.

Click on the infographic for a closer look at M&A in 2016.

M&A Update Year End 2016 - Capstone Infographic

The Street interviewed Capstone CEO David Braun for the article “Hollywood Reporter-Billboard Media Likes Sound of SpinMedia’s Music Brands.”

In the article David Braun analyzes the deal’s strategic rationale and discusses how traditional media businesses can continue to grow amidst a changing environment. As print media declines and digital media consumption rises, traditional publishing and communication companies must find new ways to stay relevant, capture market share and most importantly revenue.

Read the full article on The Street here: Hollywood Reporter-Billboard Media Likes Sound of SpinMedia’s Music Brands.”

2016 continued be a strategic, rather than a financial buyer’s market and strategic buyers deployed large cash reserves to pursue growth through M&A. Unlike financial buyers, which typically look for a three to five years return on investment, strategic buyers can afford to pay more due to their long-term focus.

The middle market has been eager to use M&A as a viable tool for growth. Despite a challenging economic environment, activity in the middle market remained stable in 2016, dropping only 3.5% in 3Q 2016.

As we close out 2016 and look forward to 2017, here is a roundup of the most popular posts of the year from the Successful Acquisitions blog.

  1. The Most Important Thing about M&A According to Warren Buffett
  2. 10 Signs You Should Walk Away from a Deal
  3. M&A Activity after the U.S. Election: Analysis and Outlook
  4. 7 Strategic Questions to Ask Before Pursuing Mergers & Acquisitions – New Webinar
  5. How to Avoid Irrational Decision-Making in M&A
  6. 5 Tips for Taking a Strategic Approach to M&A in 2016
  7. Is Middle Market M&A on the Rebound?
  8. Growth Through Acquisition – Exit Readiness Podcast Interview
  9. How to Break Bad News without Sinking Your Acquisition
  10. What Is Happening with Valuation Multiples Today?

Thank you for reading and we will see you all in 2017.

Photo Credit: Barn Images

2016 has been a year of surprises with the U.K. voting to leave the European Union, fears over China’s economic slowdown, oil price slumps, and Donald Trump winning the U.S. presidential election. Despite these shocks to the market, 2016 will likely be the third best year for global mergers and acquisitions in the past 10 years and dealmakers predict that 2017 will be even stronger.

2017 Outlook

There are many factors that may contribute to robust M&A activity next year. Capital remains available and cheap and in the latest Livingston Survey from the Federal Reserve Bank of Philadelphia, economic forecasters have strengthened their outlook for the U.S. economic environment and their predictions for stock prices. The possibility of tax reform under the new presidential administration may also boost M&A activity. Most importantly, CEOs remain confident and willing to execute deals to grow their businesses.

Geopolitical upsets like Brexit and the outcome of the U.S. presidential elections may dampen activity as some may wait to see how these situations will affect their business and the marketplace. Changes in the interest rates may also reduce activity in some sectors, but create new opportunities in others such as financial services.

Top Sectors for 2017

Strong activity is expected in the following sectors:

  • Consumer product
  • Telecommunications, Media and Technology (TMT)
  • Industrials
  • Healthcare
  • Financial services
  • Oil and gas

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Photo Credit: David Phan via Flickr cc

The demand for “healthy” or “better for you” food and beverages continues as consumers become more health conscious. Following this trend, Dr. Pepper Snapple (DPS) has agreed to acquire Bai brands, the maker of antioxidant and other “all natural” drinks for $1.7 billion. Founded in 2009, Bai has about $300 million in revenue and 373 employees. The acquisition is one of the biggest for DPS and the first major one since it spun off Cadbury Schweppes in 2008.

Demand for Soda Shrinking

Soda companies are faced with shrinking demand for their traditional products and increased competition from new healthy products both from large food manufacturers and startup brands.

Many recognize the need to expand their portfolios in order to continue to grow. Recently Coca-Cola acquired Unilever’s Soy drink business and PepsiCo agreed to acquire KeVita, a probiotic drink maker. Both companies also own a number of “healthy” brands. Coca-Cola owns Dasani water, Honest Tea, PowerAde and Vitamin Water and Pepsi owns Gatorade, Tropicana, Lipton Teas, and Aquafina.

While the multiple for this transaction is on the higher end, DPS is acquiring the potential growth opportunities Bai presents.

Thinking strategically, this acquisition will add breadth to DPS’s product line. DPS hopes to grow the business by filling its existing pipeline and distribution expertise with Bai’s products. By going healthy, DPS may be able to grow despite the declining popularity of soda.

From Strategic Alliance to Acquisition

Sometimes business leaders and owners shy away from acquisition because they are overwhelmed by buying an entire company. It is important to remember that there are many options and tools available to you when it comes to external growth, from strategic alliance to joint ventures to minority interest to a majority stake to 100% acquisition. All of these options should be considered to determine which path is right for your business.

The DPS – Bai transaction did not begin at 100% acquisition. Instead, DPS began with a strategic partnership, then later acquired a minority stake for $15 million in 2014. With minority interest DPS could gain some of the upsides of Bai’s growth, while also mitigating the risks associated with a new relatively and unknown product. Once Bai continued to grow and proved its profitability, DPS decided to acquire the entire business.

Minority investment is often used as a foothold to get your toes wet with an option to acquire the entire company later, depending on what makes the most sense for your business.