M & A News

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.

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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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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.

As expected, Verso is consolidating locations and moving its headquarters from Tennessee to Ohio. Verso purchased NewPage Holdings for $1.4 billion in January 2014, but later filed for Chapter 11 bankruptcy. While Verso has emerged from bankruptcy, the company is not out of the woods yet.

“You’ve got a wounded company cutting staff, and that hurts morale,” says Capstone CEO David Braun in The Memphis Business Journal. David says Verso will have to do more than simply cut costs in order to be successful in the long-run. Read the full article here: Even after move, Verso will have more cuts to make

 

One month after the U.S. presidential election, there is still a great deal of speculation about what will happen in the M&A market over the next year. Looking back at M&A activity so far this year, compared to 2015 activity, fewer and smaller deals were announced. During the first 9 months of 2016, M&A value dropped by 30% to $1.07 trillion and average deal size dropped by 22% to $132 million. This year we have seen fewer huge, double-digit billion dollar transactions which dominated the marketplace in 2015.

Part of the reason is that historically, leading up to a presidential election where there will be a change of administration, there’s been hesitation in the marketplace. Business people don’t like uncertainty and as a result are less likely to take action.

The outcome of the election caught a number of people off guard, and we have already seen some impact in terms of some deals that are getting re-priced, accelerated or delayed in response. For example, in the healthcare space there’s uncertainty about how the Affordable Care Act will be impacted and we’re seeing a pullback in deals that touch upon it.

Despite this, over the next 24 months we expect an uptick in M&A. We’re already seeing a strong pipeline of deal activity as a result of the election being behind us. The business climate is still somewhat unsettled, but there’s a sense of relief the election is over.

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Middle market M&A rose in October and dealmakers expect robust activity for the remainder of 2016, according to a survey by Mergers & Acquisitions. Survey participants expect more companies will be inclined to execute deals once the uncertainty of the U.S. presidential election has passed.

Overall M&A in 2016 has dropped significantly when compared to 2015 activity. US M&A value for the first nine months dropped from $1.53 trillion in 2015 to $1.07 trillion in 2016 (-30%) and the number of deals dropped from 9,028 to 8,103 (-10%), according to Thomson Reuters.

However, middle market M&A has remained relatively stable. For the first nine months of 2016 US middle market M&A value decreased just 3.5% from $155 billion to $145 billion and the number of deals decreased from 7,565 in 2015 to 6,935 in 2016 (-8.3%), according to Thomson Reuters.

As I previously discussed on this blog, now may be an ideal time for middle market companies to execute strategic mergers and acquisitions. While mega-deals are slowing down and large corporations shedding non-core business lines, there are many opportunities for middle market companies to take action. External growth, which includes joint venture, minority interest, majority interest and 100% acquisition may help your company grow for years to come.

Are you ready for M&A? Take the Acquisition Readiness Assessment now for free.

Fill out the form below to access take the assessment online.

 

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Are you keeping up with industry changes fast enough? Or are you being left behind? It’s no secret that technology is disrupting industries from manufacturing to telecommunications to retail.

“…The risk of being left behind because of technological disruption and change is driving companies to make acquisitions faster,” Steven Davidoff Solomon writes in Dealbook.

For many firms, acquisitions are the only way to obtain a new technology or product and remain a competitive player in the marketplace.

Technology firms are notorious for acquiring startups or smaller firms to gain the latest talent and cutting-edge products. For example, Facebook acquired new technology when it bought potential rivals Instagram and WhatsApp. At the same time it bolstered its position against Google.

Another sector that’s facing great disruption is the financial industry. Most think of traditional brick and mortar banks, suits and ties, credit cards, debit cards, etc. The reality is FinTech (financial technology) is reshaping the industry. PayPal, Venmo and Apple Pay are growing in popularity and traditional banks need to keep up or risk losing consumers. Traditional big banks are acquiring, rather than building, FinTech capabilities. JPMorgan Chase has formed a joint venture with On Deck, an online lending platform for small businesses.

The advantage of acquisitions, especially in a swiftly changing environment, is the ability to gain a new technology or product rapidly and in some cases immediately. A well-executed acquisition brings you a “ready-made” solution where once the deal closes you have access to new technology, new technology that your customers need. On the other hand, building your own solution can take more time, but in today’s fast-paced environment, by the time you develop your own solution, the market may have moved on. In addition, you’ll likely face some teething problems or setbacks as you begin to develop a solution.

If there’s a technology or product that your company needs to stay relevant today or in the next five to ten years, I recommend you consider acquisition as an option. A carefully planned, strategic acquisition can help you stay up-to-date and relevant in your industry.

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Seeking growth amid a shifting telecommunications industry, AT&T has bet on media content. The company plans to acquire Time Warner for $85 billion in one of the biggest media acquisitions in history. The transaction will likely take over a year to receive regulatory approval, but both AT&T and Time Warner executives are optimistic. AT&T CEO Randall Stephenson has compared the deal to Comcast’s acquisition of NBC Universal in 2013, which was approved after a long period of regulatory scrutiny. This vertical merger will bring together Time Warner’s media content and AT&T’s distribution network in one company.

Consumers Dropping Landlines, Cable TV

The telecommunications market has shifted with many consumers dropping landlines and cable TV. Mobile use is increasing exponentially with mobile users representing 65% of digital media time in 2015. This means people are primarily using smartphones to read articles, play games and watch videos than are using computers.

Telecommunications and media companies are starting to take notice of these trends. Just last year AT&T’s biggest rival, Verizon, acquired AOL in a push to reach more mobile users. And earlier this year, it announced it would acquire Yahoo to boost its mobile unit.

Deal Synergies

One benefit of the deal is that AT&T will be able to provide more data to Time Warner and advertisers without raising prices for consumers or withholding the content from competitors (like Verizon).

AT&T may also plan to create original, exclusive content leveraging Time Warner’s expertise in media. Online streaming services such as Netflix and Amazon have successfully produced their own original content.

In the long term, AT&T wants to build up a robust, next-generation infrastructure in order to compete with cable providers. “I will be sorely disappointed if we are not going head-to-head” with cable providers by 2021, said Stephenson.

Growing in a Declining Market

As demand for traditional telecommunication services shrinks, AT&T and other providers must look outside their current market for new growth opportunities. In a declining marketing, consolidating, or simply gaining more market share will not help you grow in the long term. If AT&T managed to capture the entire market for landline phones, their revenues would still shrink as consumers abandon landlines.

By acquiring Time Warner, AT&T will own content including popular networks such as HBO and CNN. Organically growing its own content business would take time and be difficult given the large size of other media content producers like Disney and CBS. As an established business, Time Warner gives AT&T a foothold in the media market and immediate access to new users.

If like A&T you are stuck in a declining marketing, identifying markets with future demand for your company’s products or services is the key to growth. You can explore future demand by using our tool, the Opportunity Matrix, to understand where you want to position your company strategically looking forward.

Start exploring today 

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Just this Sunday, I received an email about the Ritz-Carlton Rewards and Marriott Rewards combining with Starwood Preferred Guest. According to the email and Marriott’s website, the three loyalty programs will be linked, but operate as independent programs. Marriott does not expect to merge the programs any time before 2018.

Marriott Rewards Email

Screenshot of the email announcement on combining the Ritz-Carlton Rewards and Marriott Rewards with Starwood Preferred Guest.

Marriott International first announced it would buy Starwood Hotels and Resorts Worldwide for $12.2 billion on November 11, 2015. The acquisition, which just received anti-trust approval from Chinese regulators, creates the largest hotel company with more than 5,500 owned or franchised hotels and more than 1.1 million rooms. In recent years, the hotel industry has faced competition from alternate lodging like Airbnb, making consolidations more attractive in order to save off competition and leverage economies of scale. Together Marriott and Starwood will generate $2.7 billion in fee revenue and are estimated to save $200 million in the second year post-closing.

Integration Planning Begins at the Start

Even prior to the deal closing, it’s important to begin integration planning. The Marriott and Starwood acquisition closed on September 23 and on day one, they rolled out their loyalty program integration. You can bet they already had this plan in their hip pocket.

The ability to successfully integrate largely depends on planning for and considering integration issues way back at the start of the entire acquisition process. Waiting until the day after the acquisition closes to begin thinking about integration. By then, you should already be executed your plan; it’s too late to begin planning.

The loyalty programs are just one small component of a larger plan to combine Marriott and Starwood. Even in this small piece of the plan, we see Marriott taking a phased approach by linking, but not combining Rewards with SPG. Marriott and Starwood both own a number of high-profile brand name hotels. Marriott faces the challenge of keeping Starwood’s loyal customers, many of who were upset about the merger, so keeping SPG running independently, rather than folding into Marriott Rewards, makes sense.

Determining how much to integrate depends on your strategic reason for acquisition. You may choose to have the seller integrate all of your processes, but other times you may choose to leave the seller alone. In other cases, you may even adopt best practices from the seller. You may also choose to adopt various levels of integration in different parts of your business. While Marriott has chosen to operate the loyalty programs independently, it’s likely it will combine departments like accounting and finance.

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Yahoo says the private information of at least 500 million has been compromised due to a cyber-attack in 2014. In the biggest security breach to date, hackers gained access to sensitive information including names, emails addresses, telephone numbers, birth dates, passwords, and security questions.

The security breach has ramifications not just for Yahoo and its users, but also for Verizon, which is currently in the process of acquiring Yahoo for $4.8 billion. Even though the cyberattack occurred in 2014, Verizon only found out about it last week. As a result of the hack, Verizon could possibly walk away from the deal or renegotiate the price.

The hack on Yahoo highlights the need for functional due diligence in order to identify all critical information that could potentially impact a deal. Leaders tend to focus on financial and legal data during due diligence, however failing to fully research other areas of the business, including cybersecurity, can be detrimental to your acquisition. You don’t want to find a “surprise” after the acquisition closes.

Functional Leaders Critical to Comprehensive Due Diligence

Functional due diligence is one of the best ways to ensure you are making decisions with the most complete data. This means incorporating leaders from each of the functional areas of your business – IT, sales, marketing, operations, accounting, finance – early on in the due diligence process. These leaders are involved in the day-to-day tasks of running the company and have a high-level of familiarity with their functional area. They are specialized experts who can spot problems, identify solutions, and ask appropriate questions that other executives may overlook.

It’s best to have each functional leader develop their own list of questions based on their experience working in the functional area of your business and the overall acquisition strategy. Next, have the functional leaders from your company meet with their respective leaders on the seller’s side to gather the necessary information. Once each functional leader has met with their counterpart, you can compile the individual lists into one comprehensive data set that covers all aspects of your business in thorough detail.

An addition to identifying risks and critical pieces of information, functional leaders can help develop and implement your integration plan. They will be able to anticipate specific integration challenges you may have and help develop solutions to avoid these pitfalls. Involving functional leaders in due diligence increases your chances of a successful acquisition.

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Ford announced it would acquire Chariot, a shuttle-van startup based in San Francisco, in order to expand beyond auto manufacturing and become a mobility company. This is the first acquisition by Ford Smart Mobility, which was established in March of 2016 in order to focus on “emerging mobility services.” Ford reportedly paid $65 million for Chariot.

Chariot uses 100 Ford Transit vans to offer rides to commuters along 28 routes in the San Francisco Bay Area. After the acquisition, Chariot will leverage Ford’s expertise in logistics and vehicle operations as well as use data algorithms to schedule trips in real time. Together Chariot and Ford plan to expand to at least five more markets. Ford already has shuttle programs in Kansas City, Missouri, and Dearborn Michigan. Ford intends to focus on other forms of transportation including bikes, dynamic shuttles and more, according to Jim Hackett, the chairman of Ford Smart Mobility.

Ford will also partner with Motivate to expand a bike sharing program in the Bay Area. Through the partnership, the program will grow to from 700 to 7,000 bikes and be renamed Ford GoBike.

Auto Manufacturing in Decline

To put it nicely, the outlook for auto manufacturing is pretty bleak. Competitors like Zipcar, Uber and Lyft and new technologies have disrupted the traditional automotive industry. Consumers today are buying fewer cars and option for public transportation or car sharing instead. The trend is not limited to millennials, in fact, according to a study published by University of Michigan’s Transportation Research Institute, fewer middle-aged adults in their 30s and 40s had driver’s licenses in 2014 than did in 1983. Ford is by no means the only car manufacturer to see that its market is shrinking. Earlier this year GM invested $500 million in Lyft to invest in self-driving car partnership.

How to Grow in a Shrinking Market

What’s your market outlook? While your business may be profitable today, if you’re in a shrinking market, future growth will be challenging. Faced with a declining market, now is the time to consider your options and next steps to ensure long term growth. You made focus on building your own solution organically or you may decide to partner with another company to rapidly gain access to a new market. In the case of Ford, the acquisition will allow the company to rapidly gain a foothold in the growing market of ride-sharing and alternate means of transportation.

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The credit union industry is evolving. While many credit unions are consolidating through credit union mergers, others are seizing creative opportunities such as adopting cloud technology to improve efficiencies, focusing on underserved markets, and using partnerships and strategic mergers and acquisitions to grow and bring value to members.

One interesting trend to note is credit unions acquiring banks. Since 2011, 11 transactions have been announced. Most recently Family Security Credit Union of Decatur, Alabama announced its plan to acquire Bank of Pine Hill of Pine Hill, Alabama. Earlier this year Royal Credit Union announced the acquisition of Capital Bank in St. Paul, Minnesota, and Advia Credit Union announced the acquisition of Mid America Bank in Parchment, Michigan.

Since 2011, 11 credit union - bank acquisitions have been announced.

Since 2011, 11 credit union – bank acquisitions have been announced.

Credit unions are taking action for a number of reasons including to increase their market footprint, scale with vendors and partners, grow non-interest income, and enhance technology. For many credit unions, strategic mergers and acquisitions can be a way to rapidly achieve growth.

Acquiring community banks is a new type of opportunity for credit unions that adds to their share and geographic reach. For the banks, credit unions are a trusted local partner that can continue to serve the financial needs of their customers. More credit union – bank transactions are expected to be announced before the end of 2016.

While acquiring a bank may or may not be the right strategy for your organization, being proactive and developing new strategies for growth is incredibly important in today’s environment. Credit unions are faced with new challenges every day from the rising cost of compliance to the increasing threat of hackers and cyber security issues to generating member-friendly non-interest income. It is abundantly clear that remaining stagnant and going about business as usual is no longer an option. Credit unions that address these challenges head-on and adapt new strategies will continue to grow and serve the needs of their current members and new members.

I am excited to announce the launch of our new quarterly newsletter, The M&A Growth Bulletin. This newsletter will deliver essential guidance on growth through M&A along with tips and tactics drawn directly from successful transactions completed in the market.

In the first issue of The M&A Growth Bulletin, we will address five common objections leaders have to M&A and how you can use acquisitions to accelerate your growth. The newsletter will also include tips for strategic growth and highlight interesting deals in the news. These valuable articles will be published exclusively for the M&A Growth Bulletin and accessible by subscribers for free.

The first issue will be published at the beginning of September. Subscribe now if you’d like to have The M&A Growth Bulletin delivered straight to your inbox each quarter.

Photo Credit: Barn Images, Modification: “M&A Growth Bulletin” text and M&A U™ logo added by Capstone Strategic, Inc

Walmart will acquire web retailer Jet.com for $3.3 billion in order to boost its online business. The deal is the largest ever purchase of U.S. e-commerce startup. While Walmart has plenty of bricks and mortar stores, the company has struggled to grow its online business. Walmart knows it needs to be competitive with Amazon who has branched out into selling groceries and other consumer goods traditionally bought at stores. It’s no secret that e-commerce is on the rise. We now have a whole generation of shoppers who grew up with the internet and are very comfortable with and may even prefer buying ordinary staples online instead of going to a physical store.

There are a couple of interesting points to note about this transaction from an integration standpoint.

1. Keeping Key Employees

It’s important to assess key employees at the seller’s organization and put plans in place to keep them post-closing. Keep in mind, the best person for the job might be in the seller’s organization. Jet founder Marc Lore will take a senior leadership position in Walmart’s e-commerce division while Walmart’s top online executive Neil Ashe will leave. Part of the reason for acquisition is the expertise of a star player who will help Walmart be more effective at e-commerce.

2. Adapting to the Seller

The amount of equity you acquire in a company does not indicate what you should do from an integration standpoint. Just because you acquire 100% of a company does not mean you should force the seller to comply with all of your practices.

It would not make much sense if, after the acquisition, Walmart expected Jet to comply with the Walmart way of doing things. Why did Walmart acquire Jet in the first place? They wanted the knowledge and expertise. Walmart plans to keep Jet.com and Walmart.com operating as separate websites. It also plans to integrate Jet’s software into its own website.

A critical component to being successful at integration is understanding what level of integration you need. You must be disciplined and understand why you are buying the company whether is for their expertise, culture, members, etc. Whatever the case may be, keep in mind you may need to integrate your organization to the seller’s.  This sets the tone for the way you will be thinking about integration. Don’t assume that everything the seller does needs to change.

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Unilever purchased Dollar Shave Club, a startup that sells razors and grooming products to men, for $1 billion. That price may seem absurd for a company that is not yet profitable, however Dollar Shave club is growing quickly.

The company’s revenue is expected to jump from $152 million in 2015 to $200 million in 2016. Dollar Shave Club was founded 2012 by Michael Dubin and delivers razors and other grooming products to subscribers each month by mail. The acquisition also gives Unilever a foothold in the U.S. men’s razor market and allows it to compete with its rival Procter & Gamble, who owns Gillette, the top player.

In contrast, Gillette’s market share has shrunk from 71% of the U.S. market in 2010 to 59% in 2015. Gillette was caught off guard by the success of Dollar Shave Club and tried to halt its growth by filing a lawsuit against Dollar Shave Club claiming patent infringement.

Understanding Future Customer Demand

The acquisition of Dollar Shave Club highlights the importance of understanding and capturing future customer demand. The ability to fulfill the demands of your current customers and of your customers in the future remains key to the success of any company. After all, customers are what keeps you in business!

This demand-driven approach is incredibly important in pursuing strategic mergers and acquisitions that help you grow long-term. Not only does Dollar Shave Club allow Unilever to compete in the U.S., it allows Unilever to capitalize on the rise of ecommerce and a popular brand name. More and more consumers are buying products online rather than in stores and subscription-based businesses are increasingly popular. Amazon even has a button that literally allows consumers to order everyday goods like soaps, laundry detergents, dryer sheets, and even some groceries, at the push of a button. Purchasing Dollar Shave Club is not just about growing today; it’s about growing in the future.

Clearly the market is different than it was even five or ten years ago and it will continue evolving over the next five, ten or 15 years. As a business leader you have two choices – maintain business as usual and react when faced with a new competitor and industry disruptor, or proactively develop a plan to leverage changes to your advantage. The choice is yours.

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Another blockbuster tech deal was announced yesterday. Verizon will acquire Yahoo’s core business for $4.83 billion to boost its digital advertising capabilities. The deal includes Yahoo’s search, mail content and ad-tech business, but does not include Yahoo’s shares in Alibaba and Yahoo Japan. The combined company will reach over one billion users. Verizon plans to merge Yahoo with AOL, which was acquired last year for $4.4 billion, to create a larger advertising subsidiary.

Verizon’s Strategic Rationale

Verizon is building is digital advertising capabilities to compete with the top two players, Google and Facebook. With the deal, Verizon will double its digital advertising business to become the third largest US internet advertiser with 4.5% of the market share.

Lowell McAdam, Verizon Chairman and CEO, said in a press release“Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers. The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising.” 

In building on its AOL deal, Verizon is doing what we call taking “frequent bites of the apple,” or using a series of deals to achieve its overall growth strategy. Using a multiple deals rather than a single transformational deal can have many benefits including focusing on a single reason for acquisition, adjusting to integration challenges more easily and minimizing the risk of acquisition failure. Fortunately, Verizon has already had some time to digest and integrate the AOL acquisition because integrating Yahoo’s massive workforce of 8,800 employees and 700 contractors will be no easy task.

Integrating Yahoo will be critical to growing Verizon’s digital ad business. In today’s marketplace, content is king and Verizon will need to produce and monetize exciting content in order to compete with Google and Facebook, who have users creating unique videos for free on YouTube and Facebook. Even with Yahoo, Verizon will still be far behind Google and Facebook who make up 36% and 17% of the market, respectively.

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After hitting record-high levels in 2015, global M&A activity dropped significantly in the first half of 2016. It was the slowest first six month period for global mergers and acquisitions in the past two years. The value of deals decreased from $2.03 trillion to $1.65 trillion (19%) while the number of deals decreased from 22,153 to 21,087 (5%). While overall activity declined, deals announced in the second quarter of 2016 increased by 24% when compared to the first quarter. The downturn in value has been attributed to fewer mega deals (deals over $5 billion).

Global middle market M&A (deals under $500 million) remained relatively stable compared to overall activity. Deal value and volume fell by just 6% and 2%, respectively.

Looking to the future, uncertainty hampers M&A activity. Dealmakers cited concerns about “Brexit,” the U.K.’s vote to leave the European Union and the upcoming U.S. presidential election in November.

Deals in the News

M&A update 1H 2016 Infographic

On June 23 the United Kingdom voted to leave the European Union (E.U.). Many were shocked at the outcome of “Brexit” and the markets reacted badly. The day following the vote, the pound dropped down to the lowest level against the dollar since 1985, stocks in the U.K. and U.S. fell, and on June 27 the Standards & Poor’s rating agency downgraded the U.K.’s rating from AAA to AA. E.U. leaders continue to hold meetings to discuss the fall-out of Brexit.

In the middle market, Brexit has added to concerns for dealmakers who are already worried about the upcoming U.S. presidential elections. There are many questions about what will happen in terms of economics, regulations, taxes and business agreements. While most middle market companies are focused on the U.S. market, Brexit has the potential to bring about change for those who don’t trade directly with Europe.

Challenge or Opportunity?

While concerns about trade and the markets are valid, Brexit, like other tumultuous events, is also an opportunity for bold leaders who aren’t afraid to take action and be proactive. While your competitors are panicking about the future, you can use the current climate to your advantage.

For example, with the stock market plunging two common reactions are to panic about the future or take a risk and buy stock. If you follow the common sense maxim of “buy low, sell high,” your course of action seems self-evident. The day following Brexit, Barclays and the Royal Bank of Scotland’s stocks dropped sharply and trading was suspended briefly on June 27. But did the stock really lose 17% in one day, or was the market overreacting? One week later, the markets seemed to be stabilizing.

Consumers Favor Independence over Bureaucracy

Whether or not you support Brexit, the vote seems to indicate that people are tired of bureaucracy.  The same could be true from a business standpoint; people (your potential customers) now favor flexible startups over large, established corporations. They expect their voices to be heard and for businesses to listen to their feedback and address their concerns.

Think about the rise of Uber over taxis. Uber is nimble, fresh and technologically advanced – you can order your ride via mobile app, track your driver, and leave reviews. Pricing is typically cheaper than taxis and changes in real-time according to supply and demand. On the other hand, taxis are seen as slow and ineffective. “Uberization” is occurring across countless industries even traditional ones such as healthcare and financial institutions.

Take Action

Regardless of whether or not you agree with Brexit, there’s no point in panicking or digging in your heels wishing for the circumstances to be different. In business, it’s impossible to control market changes or shifts in consumer demand. In order to be successful, you must adapt and use these conditions to your advantage. Take action and put together a plan that will allow you not only to survive, but to thrive in a changing climate.

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* The opinions expressed in this blog post are not meant to be used as legal or financial advice.

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