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

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

 

Acquisitions can transform your company’s growth trajectory and set you up for long-term success. You may choose to use acquisition because your organic growth has stalled and hiring additional sales people or investing in R&D will not not help you achieve your business goals. Acquisition is fast and opens the door to many new growth options by bringing on board resources like new technological capabilities and key employees,

Capstone Vice President Matt Craft had the opportunity to speak on “Growth through Acquisitions” on the Exit Readiness Podcast with Pat Ennis. Matt explains key drivers for pursuing acquisitions and how to maximize your potential for success.

In this episode Matt and Pat discuss:

  • Why you should considering using M&A to grow your business
  • How many companies you should look at before closing a deal
  • What to look for during due diligence
  • When to get advisors involved in the M&A process
  • Determining the best direction for your company
  • How long does an acquisition typically takes
  • And more!

Listen to the episode now.

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.

Photo Credit: Barn Images

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

M&A activity in the first 9 months of 2015 remained strong reaching $3.2 trillion globally. It was the strongest first 9-month period since 2007 for global mergers and acquisitions.

The trend of large, mega deals continued in the third quarter of 2015.  Global deal value increased by 32% in the first 9 months of 2015 when compared to the same time period in 2014. On the other hand, deal volume remained relatively flat, only increasing by 2.3%. The average deal size was $103 million, a 30% increase from 2014.

In the US, there were $1.5 trillion in the first nine months of 2015, a 46% increase in value when compared to the first 9 months of 2014.  Click on our infographic for more insights on M&A activity in 3Q 2015.

M&A update 3Q 2015

 

Feature Photo Credit: Mark Dixon via Flickr cc

Selecting the right market is critical to successful growth. The market should have healthy, stable demand for your products or services and be aligned with your overall growth strategy. We strongly recommend selecting a market prior to identifying acquisition targets or potential partners. Without understanding market dynamics, you may be tempted to pursue what looks like a promising opportunity, only to find that the market is in a serious decline.

So how do you go about researching, identifying, evaluating and prioritizing markets? Managing Director John Dearing and Project Manager Matt Craft share the secrets to success in “Picking Top-Notch Markets” presented at for the Virginia Economic Development Partnership Program (VEDP)’s VALET spring meeting. Watch the video presentation below:

Aloha! We hope you have been enjoying these last few weeks of summer. Our very own Managing Director, John Dearing, recently returned from Maui, Hawaii, where he spoke at the National Credit Union Directors Conference hosted by CU Conferences on August 12 -15. John presented “Strategic Mergers and Acquisitions: Exploring External Growth” in two parts to over 100 credit union directors and executives.

FinTech Acquisitions

One trend highlighted at the conference was the focus on financial technology (FinTech) acquisitions. Banks in particular have been acquiring startups or creating their own incubators and venture capital arms.

Recent examples include:

  • Capital One acquired Level Money, a San Francisco-based money management app in January 2015.
  • BBVA acquired Simple, a banking startup, for $117 million in February 2014.
  • Context 360, Motion Savvy and Bracket Computing joined Wells Fargo’s accelerator program. The program involves direct investment in the startups and six months of mentoring for the executive teams.
  • Mastercard is using strategic M&A to build customer loyalty, data analytics and safety and security. Since 2014 it has acquired C SAM, a mobile wallet service; Pinpoint, a loyalty provider; ElectraCard Services, a payment processor; Transaction Network Services (TNS) a payment gateway service; and Applied Predictive Technologies (APT), a cloud-based analytics provider.

Mobile Banking on the Rise

Like banks, credit unions should also consider using acquisitions to build their technology. With the demand for mobile technology services ion the rise, more members are relying on smartphones to access anything and everything – including their financial data. Mobile banking is the largest banking channel. More than 25% of the world’s population will be mobile bankers within four years and organizations without a clear strategy will lose members.

Following Demand is Critical to Growth

Rather than build up this capability internally, credit unions can acquire to add unique technology products and remain competitive.

Mobile technology is just one example of how credit unions can use strategic M&A to grow. Perhaps you want to quickly expand your geographic footprint in a growing metropolitan area; acquiring another credit union would allow you to do so. Observing current demand and future demand is critical to strategic growth and may provide a competitive advantage.  As you go about developing your strategic plan, consider using acquisition to help your organization achieve its growth goals.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

The beautiful view at the National Credit Union Directors Conference hosted by CU Conferences in Maui on August 12-15, 2015.

Global dealmaking remains robust, reaching $2.2 trillion in the first half of 2015, according to Thomson Reuters data. This is an increase of nearly 40% from the first half of 2014 and the most active half since 2007. However, the number of deals only increased slightly, by 3%. The trend of fewer, larger transactions continues: mega deals accounted for 50% of M&A value in the first half. Average deal size increased by 34% when compared to 1H 2014.

M&A is strong due to favorable market conditions: abundant cheap financing, record stock prices, and renewed confidence in the economy. The U.S. market continues to drive global activity. U.S. transactions reached a record $1.02 trillion – the first time activity passed $1 trillion in a half-year period.

Check out our infographic for more:

M&A Update 1H 2015

 

CVS’s $1.9 billion acquisition of Target’s pharmacy business is one of the more interesting deals in the news for a number of reasons. Let’s take a look at the transaction and explore why it makes sense strategically for both buyer and seller.

With this deal, CVS will have the opportunity to expand its footprint in a rapidly and significantly, predominantly through geographic expansion into the Pacific Northwest, where CVS has a weak presence. The acquisition will also quickly grow CVS’s market share in the pharmacy and prescription drug space. CVS, already the top provider of prescription drugs in the U.S., will become even bigger with this transaction.

On the other side of the coin, while CVS grows larger, Target is divesting.  We often talk M&A in the context of exploring your five options for growth, one of which is exiting the market. Divesting can be an excellent strategy to recalibrate your business and focus on your strategic areas of growth. If an area of business is not profitable or is not in line with your overall growth objectives, you may want to consider exiting the business.

In 2014, Target’s pharmacy business operated at a loss. Given this situation and the complexity of operating a pharmacy business, it makes sense to sell Target’s pharmacy business to CVS, a highly skilled company that has the scale needed to successfully operate the business.

Another interesting part of the transaction is co-branding.  CVS will rebrand Target’s clinics as Minute Clinics and add 20 new clinics in Target stores. 1,660 drug stores inside Target stores will also be rebranded as CVS. This move makes sense for both companies hoping to attract more customers by offering complementary services in one location. People may go to a Minute Clinic for same-day care or to fill a prescription and then decide to go shopping in Target. Or, they may be already shopping in Target and then decide to go into a Minute Clinic.

Of course, the devil is in the detail when it comes to execution, but hopefully CVS and Target will be able to fit all the pieces together in order to be successful.

Photo Credit: Mike Mozart via Flickr cc

Global mergers and acquisitions reached $854 billion in the first quarter of 2015, a 25% increase from 2014 values. According to the Financial Times, this is the fastest start M&A has had since 2007.

While deal value increased dramatically in the first three months of 2015, the number of deals decreased slightly. The trend of fewer, larger transactions continues in 2015. Average deal size for Q1 2015 was $93 million, a 28% increase from $73 million in Q1 2014.

Check out our infographic for a snapshot on global mergers and acquisitions in Q1 2015. Click on the image for a closer look.

M&A Update Q1 2015 Infographic

Feature photo credit: rodposse via Flickr cc

In the first nine months of 2014, US transactions made up 51% of global mergers and acquisitions indicating confidence in the strength of the US economy.

In Europe, cash-stuffed German companies looked to international markets, especially the US, to drive growth. Recent deals include Siemens acquisition of Dresser Rand for $7.6 billion, Merck of Germany’s acquisition of Sigma-Aldrich for $17 billion and SAP’s acquisition of Concur for $8.3 billion. However, this confidence has not carried over to the fourth quarter. Europe and Asia now face fears of an economic slow-down, according to reports.

Check out our infographic for a snapshot on Global Mergers and Acquisitions in 3Q 2014. Click on the image for a closer look.

M&A Update: 3Q 2014

Summer is officially over and we’re ready to get back into the swing of things. If this summer is any indication of M&A for the remainder of the year, we can expect robust deal activity. Typically we see fewer transactions over the summer, particularly in August, but this year we saw $293 billion in global mergers and acquisitions, an increase of 83% when compared to the previous year.

Already, just two days into September, a couple of interesting deals have been announced:

 

 

M&A activity was on the rise in the first six months of 2014. Global M&A increased 73 percent to $1.77  trillion and  Midmarket M&A increased 18 percent to $399.4 billion.

Check out our infographic for a snapshot on Global Mergers and Acquisitions in 1H 2014. Click on the image for a closer look.

1H 2014 Mergers and Acquisitions

Feature Photo Credit: www.flazingo.com via Flickr cc

The polyolefins industry, like so many others, is evolving significantly. Growth in emerging markets and Asia has skyrocketed while European and North American markets have matured.

Last week I was invited to speak at the Future of Polyolefins Conference 2014 in Dusseldorf, Germany, where top executives from key industry players such as Borealis AG and Clariant gathered to discuss industry dynamics and trends.

A resounding theme throughout the conference was the seismic shifts in demand and production the polyolefin industry. In the near future Europe will move from a net exporter to a net importer as it closes several polyolefins facilities and reduces capacity.

If regulations change, the U.S. will export more polyolefins to fill part of this gap in production. China is also ramping up its polyolefins production to match growing demand in Asia, but even with additional capacity demand will soon outstrip production over the next ten years.

Several speakers also stressed the need for diversification in order to smooth over volatility in the industry.

In this new paradigm leaders are reassessing their growth strategies and are considering external moves like strategic alliances, joint ventures and acquisitions.

In my presentation, “Strategic Alliances, Joint Ventures and M&A – the Route to Success,?” I encouraged conference attendees to consider their five options in building their growth strategy:

  1. Grow Organically
  2. Exit the Market
  3. Be the Low-Cost Provider
  4. Do Nothing
  5. Pursue External Growth

It’s important to realize you have a choice when it comes to planning your growth strategy. By evaluating all five options, you are better equipped to make the right decision and confidently execute your plan.

Photo Credit: Ian Sane via Compfight cc

Pharmaceutical companies are using acquisition to become “pointy,” or more focused.

Two recent examples are Bayer and Merck.  Bayer is focusing on over the counter medications by acquiring Merck’s consumer care business for $14.2 billion. On the other hand, Merck has become more streamlined through divestment.

As I’ve mentioned before, although divestment means becoming smaller, it can be pathway to growth. By trimming and pruning your company, you return to your core competencies and can more effectively focus on long-term strategic growth.

Not only are pharmaceuticals becoming pointier, they are also becoming bigger through consolidation. According to Bloomberg, there were $118 billion in healthcare deals announced in April 2014 compared with $175 billion in deals executed in 2013. By acquiring scale pharmaceutical companies can sell more products and have better leverage for negotiating with customers.

 

Photo Credit: Charles Williams via Flickr cc

Capstone Strategic, Inc., a leading consulting firm specializing in mergers and acquisitions, announced today that South Carolina Financial Solutions (SCFS) has acquired Innova Plan Strategies (Innova).

SCFS is a credit union service organization owned by South Carolina Federal Credit Union (South Carolina Federal) located in Charleston, SC. Innova offers comprehensive employee benefit solutions and was located in Charlotte, NC. As experts in privately held not-for-sale acquisitions, Capstone advised SCFS on structuring the deal to the mutual benefit of SCFS and Innova. Capstone’s position as a third-party advisor helped accelerate the negotiation process and facilitate a successful transaction.

The new acquisition is part of SCFS’s strategy to expand its benefits solutions business by providing comprehensive benefit packages to credit unions and other business entities. Innova has been rebranded as Innovatus Benefit Solutions, LLC and operates as a subsidiary of SCFS, with the former owner of Innova, Jim Fede, as President.

“Capstone was thorough and approached the entire process with a high level of professionalism,” said Jim Fede.

“Capstone helped us thoroughly evaluate this purchase opportunity,” said Bonnie Ciuffo, President of South Carolina Financial Solutions. “The approach was not just about the financials but the cultural fit with our organization. When we are ready to consider other purchase opportunities, Capstone will be the first company we call.”

“Given SCFS and Innova’s existing partnership, it was essential to build upon their joint successes while protecting their relationship when structuring the transaction,” said Capstone Managing Director John Dearing, “As a result of the acquisition, SCFS now has the key team members and expertise in-house to expand exponentially in their targeted benefit growth area. We are happy to see SCFS and Innova’s partnership continue and look forward to working with SCFS in the future.”

About Capstone Strategic, Inc.

Capstone is a consulting firm located outside of Washington, DC that specializes in growth strategies, primarily Mergers & Acquisitions. Founded in 1995 by CEO David Braun, Capstone has facilitated over $1 billion of successful transactions in a wide variety of manufacturing and service industries. Capstone utilizes a proprietary process to provide tailored services to clients in a broad range of domestic and international industries.  For more information about Capstone and its growth strategy and advisory capabilities, visit www.CapstoneStrategic.com. For timely commentary and insights into the M&A market, visit the Successful Acquisitions blog at www.SuccessfulAcquisitions.net. Capstone can also be reached at 703.854.1910 or Growth@CapstoneStrategic.com

About South Carolina Financial Solutions, LLC

South Carolina Financial Solutions (SCFS) is a credit union service organization that is a member of the South Carolina Federal Credit Union family of service organizations. SCFS provides credit unions of all sizes with affordable, business-enhancing services. With the credit union philosophy of “people helping people” in mind, SCFS and its associated service organizations offer industry professionals with extensive experience to enhance a credit union’s functionality, agility and business processes. More information about South Carolina Financial Solutions can be found at SouthCarolinaFinancialSolutions.org.

 

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As tax day approaches in the U.S. I thought it’d be appropriate to discuss a business tax trend. As you may be with your own return, U.S. corporations are looking for more tax advantages.  Many are seeking tax inversions, where they reincorporate in a new country with a lower tax rate as a result of an acquisition.

Last month, Chiquita acquired Fyffes, a food distributor located in Ireland in an all-stock deal valued at $526 million. Even though Chiquita is the acquirer, the new company will be headquartered in Ireland because of favorable tax conditions there. Companies in a variety of industries, from manufacturing to food to healthcare, are seeking tax shelters overseas, especially in Ireland.

In many cases, a tax inversion is an essential component of the acquisition. For example, Endo Health Solutions acquired Paladin Labs in November 2013 and expects to save $50 million in taxes a year by relocating to Ireland.

After Cleveland-based Eaton Corp acquired Ireland-based Cooper Industries in 2012 and moved its headquarters to Dublin, CFO Richard Fearon acknowledged that the tax advantage was significant.  “We chose Dublin because it does have a tax climate that’s a bit more favorable than some countries….,” he said. “The U.S. tax code, which is a global system, really penalizes companies for taking cash back to the United States.”

Fearon’s comment also highlights the main reason companies like Apple are hoarding cash overseas instead of bringing it back to invest in R&D.

Why This Is Important for You

President Obama and Congress are debating changing the tax code to prevent U.S. companies from benefiting from this tax advantage. Companies must currently transfer more than 20 percent of their shares to foreign owners to reincorporate in another country. Under the proposed changes, they would have to transfer more than 50 percent of their shares – basically they would have to buy foreign companies larger than themselves. The change would also block tax inversions for domestic companies with “substantial business activities in the U.S.”

We believe tax inversions will continue and may even accelerate as businesses try to take advantage of this tax benefit before it’s gone. Be on the lookout for more to come.

Additional Tax Inversions in the News

Photo Credit: Taxcredits.net Tax Credits via Compfight cc

 

Private equity investors and strategic buyers are enthusiastic about 2014. Of the U.S. executives polled recently by EY Americas Transaction Advisory Services, 41 % said they expect to pursue at least one acquisition in 2014, compared with only 23 % polled at the end of 2012.  Uncertainty in regulation remains one of the biggest challenges facing PE firms. Despite this the PE market is growing and private equity activity has begun to make a comeback. Recently released GF data shows valuations acquisitions valued between $25-50m increased to 6.9x EBITDA in 2013.

Family offices will become more accessible for investment opportunities in 2014. Numerous family offices have begun directly investing in or purchasing private companies over the last few years. Family offices have improved capabilities of directly investing, thus allowing them to bypass some of the drawbacks that come from investing via PE funds – such as fees, illiquidity and a lack of control. This trend is expected to continue in 2014, with 2013 seeing a 50% increase in the number of family offices actively pursuing private company investment opportunities.

This post is part of a series addressing current and expected viewpoints on M&A from across a number of professionally relevant sources. Read parts one, two and three of our Midmarket M&A Analysis. 

Photo Credit: shlomp-a-plompa via Compfight cc

This is the third part in a series addressing current and expected viewpoints on M&A from across a number of professionally relevant sources. Read parts one and two of our Midmarket M&A Analysis. 

Industries that showed strong growth in early-stage activity in Q3 2013 included the consumer, life sciences, and telecommunications, media and entertainment (TME) sectors.  Additionally there has been increased activity in the financial services sector.  For Q3 2013 the number of financial services deals reaching due diligence phase was 29% up Q3 vs. Q2 and early stage activity in TME was found to be up 69% up year on year.  Additionally the life sciences and consumer sectors are showing increased activity with the number of life sciences deals reaching due diligence phase 13% up Q on Q and consumer sector early-stage activity up 45% year on year. Furthermore, respondents of a Mergers & Acquisitions survey identified health care, technology, energy and manufacturing as sectors where they expect to see the most growth in for 2014. In support of these sentiments, according to a survey by KPMG, in 2014 the industries expected to have the most M&A activity are technology, media and entertainment (44% of respondents), healthcare/pharmaceuticals/life sciences (41%), financial services (28%), and energy (27 %).

The most attention-grabbing sector for the US has been technology, media and entertainment (TME), alongside a number of megadeals across a range of other sectors. In Q3 2013, announced deals in the TME sector grew year-on-year by 50% in volume and 26 times in value to 25 deals worth US$129.5bn. North American TME companies have been attractive targets of consolidation activities.

The energy industry, and the changing nature of energy supply will be central to global market activity.  Commentators have observed that everything involved in and around fracking will be significant). In addition healthcare — especially as impacts of the Affordable Care Act become clear, is expected to be important through the year and that those involved in healthcare technology and information industries will be the most active.

Telecom M&A is expected to be the focus of much activity in 2014 following signs of gathering strength through 2013 with larger sized deals closing.  Telecoms, by far the most significant sector for the year, accounted for 21% of US M&A activity in 2013 – driven by the $130billion Verizon-Vodafone deal, the second largest deal on record (6).

Consumer M&A activity, particularly in retail, has also seen notably increased activity. In particular luxury retailers that were hit heavily by falling demand during the recession have had some successful rebounding. The retail sector generally is appealing to private equity dealmakers, creating a further driver of consumer M&A activity in the US, with sizeable activity in both buyouts and exits. Industry experts expect the M&A climate to generally trend upward for the US through 2014.