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

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

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

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

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

Photo credit: Barnimages.com 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.

Photo credit: Mike Mozart via Flickr cc

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

From Success to Struggle

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

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

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

Are You Doing Nothing?

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

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

Photo credit: Mike Mozart via Flickr cc

Capstone Vice President Matt Craft presented at the Virginia Leaders in Export Trade (VALET) program orientation in Richmond on January 19.

For 14 years, Capstone has helped Virginia companies grow through our participation in the Virginia Economic Development Partnership’s VALET program. Matt talked about how leaders can identify the best markets for growth their companies and objectively make decisions using data and tools.

Capstone Vice President Matt Craft presents to VALET companies in Richmond, Virginia.

Capstone Vice President Matt Craft presents to VALET companies in Richmond, Virginia.

As the members enter the program, we wish them the best of luck and urge them to take advantage of the resources and opportunities available for helping their company grow.

When you think growing your business in 2017, you probably picture hiring more sales people, opening a new branch, developing additional products or acquiring state-of-the-art technology. Today I want to introduce a new concept for consideration: growing by exiting a business. Before you immediately dismiss the idea, take a moment to challenge your assumptions about company growth and allow yourself to be open to a new perspective. The reality is in some cases exiting may be the best path for growing your company.

Here are three ways exiting can help you grow.

  1. Get Focused – By exiting non-core business lines you can be focus on what you’re really good at. Take P&G for example. Over the last few years the company has adopted a strategic focus and shed over 105 brands in order to focus on 10 fast-growing categories. Shedding these non-core business lines will help P&G become more profitable. You may have some business lines you want to divest so that you can refocus your strategy and resources on what you truly excel at.
  2. Avoid Losses – If a part of your business is no longer profitable, you should evaluate whether or not you should keep going. Maintaining a business simply because you’ve always done so is not a good reason. The world changes and it may be that your customers no longer have a need for this product. For example, it would be crazy to continue manufacturing VCRs in today’s world.
  3. Grow Your Bottom Line – While overall sales or number of customers may shrink if you exit a market, your overall profit may grow. We once worked with an American manufacturer who made millions of die-casting products for various industrial customers. Unfortunately, many of their customers were purchasing cheaper products from China. Faced with this competition, our client decided to reinvent themselves into a maker of specialty components for the aerospace industry. They sold their old equipment and purchased the latest technology. As a result, their customer base shrunk tremendously, but profit rose.

When we hear the word “growth,” we automatically think about “more,” “bigger,” “expanding” not “less,” “smaller” or “shrinking.” While many would never consider exiting a business in order to grow, I encourage you to consider it as you develop your strategic growth plan.

Learn more about growing your business in our webinar 5 Options for Growth.

Photo credit: Maxime Guilbot via Flickr cc

Are you thinking about growing your business? In any business endeavor, having the right questions is often half the battle.

Join us for a new webinar on “7 Strategic Questions to Ask Before Pursuing Mergers & Acquisitions” on Wednesday, December 7. We will cover 7 powerful questions that have been tried and tested with dozens of clients at the outset of their growth programs:

  1. What business are we in?
  2. What is our core competency?
  3. What are we not?
  4. Where is our pain?
  5. What are our dreams?
  6. What is our risk tolerance?
  7. What is our company DNA?

Explore each question in depth and learn how they have immediate applications and a direct impact on your growth strategy.

After attending you will be able to:

  • Establish a firm foundation for pursuing strategic M&A and external growth
  • Use tools to examine your current business situation
  • Begin to develop an action plan for growth

Date: Wednesday, December 7, 2016

Time: 1:00 PM EST – 2:00 PM EST

CPE credit is available.

Photo credit: Ryan Milani via Flickr cc

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

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.

Photo Credit: Mike Mozart via Flickr cc

For more than 10 years, Capstone has served as a Virginia Leaders in Export Trade (VALET) Program Partner. The program, run by the Virginia Economic Development Partnership, helps businesses expand internationally.

We are excited to continue offering our expertise in strategic planning and external growth to assist companies in realizing their international growth goals. Helping VALET members to execute strategic mergers and acquisitions is one of the key ways we implement our mission.

We also provide complimentary education on international expansion and strategic growth for VALET Program companies. For example, we presented “How to Pick Top-Notch Markets”  at the VALET Spring Meeting in 2015.

Learn more about the VALET Program from the press release.

As a leader, it can be difficult to determine the best way to grow your business. Some leaders find themselves stuck in the same rut and struggle to generate new ideas to spur growth. They realize business as usual or what worked 10 years ago will no longer work in today’s market. On the other hand, other leaders have too many, rather than too few new opportunities. With so many exciting options, they may find it difficult to determine which path is best for the company’s future.

Whatever position you may find yourself in, a useful way to explore your opportunities of growth is the 5 Options for Growth Tool. This tool helps you organize the various pathways for growth that are available to your company:

  1. Organic Growth
  2. Minimizing Costs
  3. Exiting the Market
  4. Doing Nothing
  5. External Growth

Each of the pathways listed are valid ways to grow a business. But which one is the right one for you? First, start by listing all of the opportunities that come to mind in each of the categories, no matter how crazy they may seem. Brainstorming in this fashion will help you organize the ideas you already have and help develop new ones. By considering all of the possibilities listed above you can thoroughly explore your options, organize your thoughts and make an informed decision.

Learn more about growing your business in our upcoming webinar “5 Options for Growth” on January 21. CPE credit is available.

5 Options for Growth Webinar
Date: Thursday, January 21, 2016
Time: 1:00 PM ET

Photo credit: Barn Images via cc

Expedia will buy HomeAway, a vacation rental site, for $3.9 billion. With this acquisition — its largest since buying Orbitz in 2014 for $1.3 billion — Expedia will compete more directly with Airbnb.

Airbnb, through which people rent their homes to travelers, has become more popular in recent years, both with consumers looking for a cheap place to stay and with those seeking to make some extra cash. Airbnb is expecting its bookings to double to 80 million nights in 2015. HomeAway offers a comparable service. Although Expedia is online’s largest travel agency by bookings with 150 million bookings in 2014, it expects the growing demand for alternative accommodations to continue and possibly to cannibalize the hotel industry.

Build on Your Success

What can the middle market player learn from this deal? If, like Expedia, your business is successful or even the market leader, don’t get too comfortable. Success can easily slip away with disruptions in the market, changes in consumer demand, and new competitors. My point is that if you’re not growing, you’re dying – even if you don’t realize it.

Now is always the best time to build on your success and strengthen your position. You should proactively explore and evaluate all your growth options rather than wait until you are backed into a corner or feel pressured into hasty decision-making.

In addition, although acquisition is usually much faster than building a solution from the ground up, it still takes time to execute successfully. The entire process of crafting an acquisition strategy, finding the ideal markets and prospects, negotiating the deal, and finally signing on the dotted line typically takes about one year.

The first step to take now is to observe your market environment and customers. What do your customers want today? What will they want in the future? Think about meeting the needs of both current customers and customers you have yet to capture. You may decide to stay on your current path. Or you may find that you want to enter into a new market. Either decision is fine, but it should be made deliberately.

Photo Credit: Michael Coghlan via Flickr cc

Sometimes, a business must first become smaller in order to grow. What I mean is that in order to focus on your strategic goals and respond to changes in demand and in the market, you may need to less of something. This includes stopping a specific product line, shedding customers, or even divesting of an entire business line. This way, you can adjust your strategy and refocus resources (both time and money) on your core competencies so that your business can grow long-term

Take Nestle, as an example. Over the past two years the company has divested of underperforming brands like Jenny Craig, Power Bar and Juicy Juice in order to concentrate on its core businesses.

Most recently, Nestle announced that it is in talks to form a joint venture with R&R ice cream. Nestle stated that it “would contribute its ice cream businesses in Europe, Egypt, the Philippines, Brazil and Argentina to the new joint venture. It would also transfer its European frozen food businesses, excluding pizza.”

By separating its ice cream business from its core businesses, Nestle can focus more on businesses that are aligned with its goal to be a recognized leader in Nutrition Health & Wellness. In addition, divestiture allows Nestle to rapidly adapt to a changing world and market. The mass ice cream market in particular is shifting as consumers demand healthier, fresh food or premium brands. Nestle also has struggled to compete with market leader Unilever. Forming a joint venture with R&R may allow Nestle to focus on more lucrative brands and increase the profitability of the company as a whole.

If, like Nestle, you can identify an area in your business that is not performing well, you may want to take a moment to pause and consider your options. Has customer demand changed? Are all your product lines profitable? You may want to rapidly respond to these changes. It may be as simple as discontinuing a product or service, dropping unprofitable customers, or even selling an entire piece of your business. While it may seem strange to get smaller in order to grow, these activities will help you align your business with your overall growth strategy and position your company for future growth.

Photo credit Christian Kadluba via Flickr cc

 

On yesterday’s M&A Express videocast, The Hidden Power of Minority Ownership, I mentioned Marcus Lemonis, a businessman who turns around struggling businesses in the CNBC show, the Profit.

I’ve written about Lemonis before on the blog, and how he really prefers to use minority ownership so that the founders or original owners of the business continue to have a stake in it. A good operating agreement and dispute resolution are key to the rules of engagement of how you’re going to do business together – whether it be with a majority or a minority investment. In my blog post, I discuss this issue more in depth. Here’s the repost for those of you who may have missed it:

Why You Don’t Need a 51% Stake to Control a Business

“I always take control, but I did not buy 51 percent. Control doesn’t have to be 51 percent. I think people get confused by that.” Marcus Lemonis comments about minority investment on Squawkbox are spot-on.

When asked to elaborate, he explained, “I just document everything: full financial control, full operational control. I can have 10 percent [invested in a company]…and I’m still going to [run it]…”

When I speak with executives or owners about minority investment as an option, I usually hear the same pushback: We don’t want to do minority investment because we want to control the business. Well, as Lemonis’ comments demonstrate, control and minority investment are not mutually exclusive. You do not need a majority stake or 100 percent acquisition in order to have control.

Perhaps you do not have sufficient funding to acquire 100 percent of a company, or you would like to diversify your investments. You may still be able to use minority investment to achieve your strategic goals. Find out what parts of the business are important to your growth strategy and write them into your purchase agreement. Perhaps you need full control over one specific product line of the business. Make sure to document your desired level of control in the agreement.

Another idea is to build an option for purchasing further shares or a complete buyout into the agreement. You can even make this option contingent on specific performance conditions.

Minority investment is one of those pathways to growth that’s often overlooked. Don’t let this opportunity pass you by because you have misconceptions about “control.”

Check out Lemonis’ full interview on Squawkbox.

What do you do when sales decline? If you’re Diageo, you move to Africa.

Diageo, the maker of Smirnoff vodka and Johnnie Walker whisky, has been a global liquor powerhouse for years. However, the company’s growth has been slowing in its traditional markets of North America, Asia-Pacific, Latin America and the Caribbean. In other words, organic growth (business as usual) is stagnant.

In this situation, Africa offers Diageo a huge potentially untapped market. It’s no secret that Africa is on the rise. According to IMF estimates, Sub-Saharan Africa and Nigeria are expected to grow between 4-5% in 2015 and 2016. No wonder that Diageo is pursuing an aggressive external growth strategy in the region.

The company recently made a $208 million bid to increase its stake in Guinness Nigeria, which houses Diageo’s beer brands. Diageo also terminated its partnership with Heineken in South Africa in July. Both of these moves would give Diageo more control over the business in its expansion in Africa.

Diageo is also pursuing growth in the spirits trade by building its own brands specifically for the African market. The company recognizes the need to “move down market;” rather than push expensive brands. In Africa, it is focused on selling to the masses, and sales have risen 6%.

Even though Africa presents a huge opportunity, there are challenges with expanding to a new market. Diageo is not alone in eyeing Africa – it faces competition from other companies like SABMiller which is pushing for higher beer consumption on that continent. And in some markets Diageo’s spirits business and beer business compete against each other.

When faced with stalled growth, meeting demand to a new market can be a life-saver for your business. Diageo has recognized the need to go where demand is on the rise.

However different your product, you may be in a similar position to Diageo – you see the writing on the wall and your once profitable markets are shrinking or stagnant. Don’t despair. Now is the time to look to future demand. Which markets are growing? Where are new customers to be found?

Once you’ve identified a market in which to expand, think about how you’ll get there? You can use M&A to expand rapidly and effectively in a new market and ensure your business continues to thrive.

Photo Credit – Nicholas Raymond via Flickr cc

Credit union consolidations are on the rise in 2015, continuing a trend from previous years. There were 14% fewer credit unions in March 2015 than there were in March 2010, according to data from CUDATA.com. As credit unions consolidate, the number of smaller credit unions is decreasing while the number of large credit unions between $100-$500 million and over $500 million in size is increasing.

Credit union consolidation continues. There were about 14% fewer credit unions in March 2015 than March 2010.

Credit union consolidation continues. There were about 14% fewer credit unions in March 2015 than March 2010.

With all the M&A activity, it’s no surprise M&A remains a key topic of interest for credit unions leaders. Earlier this week John Dearing, Managing Director, presented “Strategic Mergers & Acquisitions: Exploring External Growth” at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee. About 70 executives and board members of credit unions participated in this interactive session.

John’s presentation not only covered current trends in credit union M&A, but also explored how credit unions can use strategic options in addition to consolidation when growing through M&A. These could include adding a new technology or expanding into a new market order to grow.

Below are some pictures from the conference.

John and Don Berra, hosts of CU Conferences.

John and Don Berra, hosts of CU Conferences.

John Dearing, Capstone Managing Director, presented "Strategic Mergers & Acquisitions: Exploring External Growth" at the Credit Union Services and Products Conference in Nashville.

John Dearing, Capstone Managing Director, presented “Strategic Mergers & Acquisitions: Exploring External Growth” at the Credit Union Services and Products Conference in Nashville.

Participants at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee.

Participants at the Credit Union Services and Products Conference hosted by CU Conferences in Nashville, Tennessee.

Enjoying local music.

Enjoying local music.

Nashville at night: The Grand Ole Opry

Nashville at night: The Grand Ole Opry

 

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.

Ikea has purchased a forest in order to have better control over their supply chain. Simply put, this move is backward integration – moving “back” or further up the supply chain, closer to raw materials and farther from end customers.

It’s an interesting strategy from both the supply chain and cost perspective and also from a branding viewpoint. This acquisition will give Ikea control over the cost of lumber, which is expected to increase globally as renewable energy becomes more popular. The company is also focused on optimizing its furniture design to use trees in the most efficient way.

In addition, Ikea has run into some environmental and sustainability challenges in the past and was banned from logging in Russia for a time in 2012. Owning this forest will help avoid pauses in the supply chain and help with quality control and environmental concerns. The acquisition is a smart-move for Ikea, both for the short-term and long-term.

Although you may not be buying a forest, you, too, can explore backward integration for your business. I would recommend using a tool like the Adjacency Map to generate new ideas about company growth.

The Adjacency Map is a series of co-centric circles with your profitable core at the center. From that core there are many different, directions in which to grow — backward integration, forward integration, new customers, new markets, new geographies, new capabilities, etc. As you move farther away from the center circle, your ideas move farther from the core business.

When brainstorming, no idea is too wild or crazy; just write everything down. There will be plenty of time to evaluate after this exercise. For example, if your profitable core is a retail beer and wine store in the southern United States you could think of backward integration into wineries or breweries or forward integration into a restaurant. You could expand into the Mid-Atlantic region or even into shipping and logistics.

Simply getting these get these ideas on paper will spark your creativity and provide direction for growth.

* The Adjacency Map is adapted from Chris Zook’s book Profit from the Core.

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Robust mergers and acquisitions activity is often an indicator of economic growth, but the recent flurry of deals do not reflect a confidence in the economy, Andrew Ross Sorkin writes in Dealbook.

Revenue growth of US companies has declined from 11.2% in 2010 to 5% to 2020, a Citigroup report indicates.  “Strategic actions such as M&A…have become a key priority to generate growth in the current environment. The lack of an organic impetus to growth is apparent in the outlook for capital expenditures.”

For many companies, acquisition is a powerful tool for growth when organic growth stalls. In today’s market, strategic acquirers are pursuing acquisitions in order to grow their business in the future.

If you’re facing a similar situation, proactively considering strategic acquisitions is a wise move. You may be growing this year, but what do your growth prospects look like down the road in five or ten years? Being proactive, rather than reactive, will put you a position that allows you to choose what you want. You will have more flexibility in considering the best acquisition prospects that meet your criteria and have more time to develop and execute your plan. Waiting until the last minute typically makes the process more difficult and limits your options.

Another trend to watch out for is cost cutting, which remains one of the main reason for executing deals in today’s market. While cost savings can be a legitimate reason for acquisition, I will raise a cautionary flag. Cost cutting is rarely a long-term growth strategy. You can only reap the benefits from cost saving synergies one time. Once you’ve trimmed the excess – closed a plant, realized tax savings, consolidated general overhead expenses – you have to ask yourself, “What’s next?” Strategic acquirers should remember to consider acquisitions in context of their overall growth strategy.