Faced with slow sales, the Nordstrom family is exploring taking the iconic department store private. It’s no secret that despite the strong economy, the retail industry has been hit hard and the rise of ecommerce has impacted brick and mortar stores across the world. Department stores like Nordstrom, Macy’s, JCPenney, and Sears are struggling to adapt to a changing retail environment and new online competitors like Amazon.

While normally not viewed this way, privatization is a type of acquisition where the Nordstrom family, along with key shareholders, would acquire the department to strategically reposition the company. Here are three reasons why going private might help Nordstrom grow in today’s tough market.

  1. Shed Cost – Nordstrom will be able to shed some of the costs associated with being publicly traded. While not the primary driver for going private, this is certainly an advantage for a company looking to increase the bottom line.
  2. Focus on the long-term – Publicly traded companies must manage the expectations of the stock market and file quarterly reports. On the other hand, private companies can pursue strategies that may have a longer pay off period, without answering to anxious investors. Nordstrom will likely have to make some drastic changes including restructuring, which may impact revenue in the short-term in order to reposition the business for long-term success.
  3. Stealth – Why should Nordstrom share its strategy with a competitor like Macy’s? As a private company, Nordstrom will be able to maintain a level of stealth in a marketplace that is becoming increasingly competitive. Secrecy will be advantageous as retailers compete in the shrinking market of brick and mortar stores and try to expand in ecommerce.

Going private may help Nordstrom grow in a changing retail landscape, but it may not be enough to ward off powerful market forces. One thing is certain: retailers can’t keep going about business as usual and expect to survive in the future. In any industry, successful companies are those that proactively adapt and anticipate changes in future demand.

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

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

Competing with Starbucks

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

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

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

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

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

The Advantages of Privately-held Companies

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

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

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

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

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

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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.

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Remember that just because a deal is announced, it doesn’t mean it will go through. A record number of M&A transactions announced in 2015 have been cancelled bringing the total deal value down from $4.374 trillion to $78 billion. Unfortunately cancelled deals mean a lot of time, resources and effort were wasted putting together these transactions.

Why Do Deal Fall Apart?

Typically when you first read about a deal in the news, especially with large publicly traded transactions, the transaction has not been completed and the two companies have only agreed to a letter of intent (LOI). After signing the LOI, the two companies can iron out all the details of the final agreement and wait for regulatory approval if necessary. During this period between LOI and close, the deal may break up for a number of reasons.

1. Regulatory Hurdles

Anti-trust issues and regulatory hurdles create delays for many large, publicly traded transactions. Regulatory scrutiny doesn’t necessarily mean a transaction will be called off, but it can be a contributing factor. Pfizer planned to acquire Allergan for $160 billion and relocate its headquarters to Ireland in order to lower its tax bill. However, due to new U.S. Treasury rules aimed at curbing these types of transactions, called tax inversions, Pfizer and Allergan called off the deal earlier this year.

2. Disagreement over Deal Terms

Other acquisitions fall apart because the two companies can’t agree on deal terms. The massive $35 billion “merger of equals” between Publicis Groupe and Omnicom Group faced a number of challenges: personality clashes, cultural differences, and disagreement on deal structure and senior positions. The deal was expected to close in six months when it was first announced, but nine months later the two companies mutually agreed to disagree and went their separate ways.

3. Cold Feet

In the world of privately-held not-for-sale acquisitions, it’s not uncommon for an owner to be anxious about selling their business. Typically by the time you’ve signed an LOI, you have overcome many of these fears by ensuring that the acquisition is the right strategic fit and gaining an understanding the owner’s perspective and motivations. However, the owner could still change their mind and decide not to sell.

On the other hand, circumstances could change that make you back out of the deal. Something uncovered during due diligence or a surprising turn of events may prevent you from going through with the deal. We once had to walk away from a deal because we didn’t share the same ethical values as the prospect company; the owner had two sets of books.

In my next post I’ll go over strategies for moving your deal forward after signing the LOI.

For an owner of a privately-held company, the business is their baby and using hard-nosed tactics to negotiate for the lowest price is ill-advised. The human factor cannot be overlooked when pursuing M&A and establishing trust with an owner is critical.

Buying a privately-held business is not like buying a car where you can negotiate the lowest possible price and then drive away and never see the salesperson again. In this case you end up driving off the lot with the salesperson in the car. Often, in a privately-held acquisition, the owner stays on and continues to work in the business for a number of years. Focusing on cost-cutting and financial engineering is no way to establish a successful (and profitable) working relationship.

Here are three ways to remember the human factor when speaking with owners:

  1. Communicate strategic rationale – Most owners receive numerous offers for their business so it’s up to you to stand out from the pack. Clearly communicating the strategic rationale for an acquisition and prove that you’ve done your research to differentiate you from others.
  2. Buy often, sell once – There is an asymmetry with buyers and sellers. You can buy as many businesses as you want, but the owner can only sell their business one time. It’s important to establish trust so the owner feels comfortable giving their “baby” away.
  3. They are all for sale…for the right equation – Just because a company is “not-for-sale” doesn’t mean it’s not for a sale. It simply means the owner isn’t actively trying to sell the business. It’s up to you to find the right factors – financial and nonfinancial – that will change a “no” to a “yes.”


When you’re pursuing an acquisition, making meaningful connections with the right people at the right companies can be challenging.

Who is the right person to contact? How can you go about contacting them? And once you do get in contact, what do you talk about to capture their interest?

These questions are I frequently hear from company executives.

One client of ours received no response after contacting both the owner and the CEO of an acquisition target about a potential partnership. He put it this way: “We have our people talking to the same ten key contacts, but there’s little to show for all our efforts.”

While he knew the right person to speak with, he was still unable to open the door to begin a meaningful dialogue. It’s not enough to know the players; you have to understand how to approach them and how to keep them interested. Here are three common questions we hear and three answers to help you with your contact strategy.

1) Who is the right person to contact?

Typically in a privately held, not-for-sale acquisition you’ll want to contact the owner or owners of the company. You might also contact the company CEO, president or another executive. Usually this information is listed on the company’s website or some secondary source of information. But first, do some primary research with lower-level employees in sales or operations without disclosing your interest in acquisition. They can provide you with additional insights into the company so that you’re fully educated and prepared when speaking with the owner.

2) Why haven’t they called me back?

Was it something you said? Maybe. Or maybe they never received your letter or email. Unfortunately you may never know why they didn’t respond. This is why I recommend calling instead of sending a letter. It’s a lot easier to get feedback from a live dialogue and to gain deeper insights. You’ll at least know they heard your message through all the clutter.  This is also a great reason for having multiple target companies… there’s bound to be a percentage of owners who never respond to your invitations.

 3) How do you keep the target interested?

Your goal during a first call is to draw the owner of an acquisition target into a conversation. Don’t try to get them to sell their company over the phone – no one is going to do that! Instead keep them on the phone by demonstrating your knowledge of their company and business and your strategic vision for a partnership (whether that be 100 percent acquisition, joint venture, strategic alliance, or minority investment).

Our clients find that they may have trouble opening doors with the correct people, even if they are familiar with many of the players in their space. These tips should help, but speaking with owners does require a certain amount of expertise and practice. Even after 20 years of experience, we still hear the word “no” on occasion. Each contact you make with an owner is a link in the chain that could lead to a prosperous acquisition. Don’t ruin your chances for a successful acquisition by making preventable mistakes. Make sure you’re prepared.

You can learn more about contacting owners in our upcoming webinar: “The First Date”: Contacting Owners and Successful First Meetings.

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Family Dollar and Dollar Tree finally have reached a deal to merge for $8.5 billion. This merger comes after months of negotiations between Family Dollar, Dollar Tree and Dollar General.

Family Dollar and Dollar Tree originally came to an agreement last July, but Dollar General quickly stepped in with a higher offer. Interestingly, although Dollar General offered a higher price at $9.1 billion, Family Dollar chose to merge with Dollar Tree due to regulatory concerns. Family Dollar also said merging with Dollar General would require it to divest of 3,500 to 4,500 stores.

Although these negotiations between some of the biggest names in low-cost retail have been exciting news for the public, they were probably more anxiety-inducing for Dollar Tree. It’s not so fun to watch your competitor swoop in and nearly take your acquisition after you’ve worked hard to put together a deal.

This is another reason why private, not-for-sale transactions can be advantageous. You have less risk that your competitors will pursue the same deal because the company is not-for-sale and there are fewer chances that they’ll find out about it until the deal’s done.

Like many of our clients, you may choose not to publicly announce the acquisition. Keeping the deal under wraps helps you maintain stealth in the marketplace and guard your strategic plan.

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With a 70% failure rate for acquisitions, it seems like the odds are against you from the beginning. Before you get scared off, however, let’s take a closer look at what that 70% means.

The 70% failure rate is mainly based on large, publicly traded transactions because large transactions must be reported to the SEC, and information on public companies is generally available. In addition, these large transactions tend to make the news more often since people are fascinated by massive deals involving well-known brands.

Despite this focus on large acquisitions, there are hundreds of smaller, unreported transactions involving middle-market companies and privately held businesses.

We call these types of deals “taking small bites of the apple.” Instead of huge, transformative deals, which tend to be a bit difficult to swallow, smaller, strategic acquisitions achieve a higher rate of success.

Acquisitions are a powerful tool for sparking growth and may be the only way for you to reach your goals. Acquiring smaller companies does not completely eliminate your risk, but conducting multiple, smaller acquisitions, enables you to take manageable steps to executing your growth strategy.

As with any business initiative, you must take some risk to reap the rewards. Following a carefully planned strategy and a proven process will help minimize your risk and optimize the success of your acquisition.

I’m frequently asked about the “right” price to put in the letter of intent. As you will know, the LOI is an important milestone in the M&A process, because it establishes a “gentleman’s agreement” before the formal deal is settled.  You have yet to compete due diligence at this stage, and figuring out the right price before you have all the information can be difficult. Do you go in with a high number so the seller signs the LOI? Or do you use a more modest number and risk losing their interest?

Think Before You Price

The number you present in your LOI should be a reflection of how you want your transaction to play out. Be aware of the unintended consequences of using too high or too low a figure. Each transaction is different, and buyers and sellers have different priorities, so no one number is right for every scenario.

Notice I did not say the price in the LOI should be the amount you are willing to pay or “an honest value.”  I shy away from these types of statements because they imply that both buyer and seller are on the same team. While you don’t need to be combative, your role is to strike a deal that is to your benefit, and that means negotiating effectively.

Sometimes people use a very high number in the LOI to get the seller to sign it. Then during negotiations and formal due diligence they try to identify risks so they can reduce the purchase price.  This strategy sometimes works. For example, when negotiating with a publicly held company it may be advantageous to have them sign the LOI sooner rather than later to keep momentum in a deal.

However, in other situations, especially with privately held businesses or first-time sellers, the owner may feel like you have “stolen” from them or misrepresented the transaction on the LOI. They may become frustrated and decide not to sell. Or if they do sell to you, and you intend to keep the former owner on as part of your management team, you will have a very sour relationship moving forward.

Keeping the Big Picture in Mind

When writing a price in the LOI, consider the big picture and your desired relationship with the owner. Remember, acquisition price is just one piece of that picture and there are many other nonfinancial issues that you will be discussing with the owner to come to the right deal.

Sprint has dropped its bid to acquire T-Mobile due to regulatory pressure. Large, public transactions must be reported and should be regulated by law, of course, but this is an unfortunate setback for Sprint. After investing resources putting together the deal and lobbying for months, the company must walk away from it because of external factors.

We want our clients to decide whether to go through with a deal rather than reacting to a decision made for them. This is one of the advantages of privately held, not-for-sale transactions.

When pursuing privately held, not-for-sale transactions, you can maximize the effectiveness of your resources – both time and money – because you face less regulatory red tape and you can avoid the auction process. Once you find the right prospect who shares your vision for the future of the company, momentum and excitement will help close the deal.

Photo Credit: Mike Mozart via Flickr cc

Facebook announced it will buy WhatsApp for $19 billion on February 19, 2014. There is no way that I can, in any credible means, justify or explain the purchase price because it’s absurd in my opinion. WhatsApp has no advertising revenues and charges each of its 450 million active users a yearly fee of just $1.

Putting the hefty purchase price aside, this deal demonstrates closing an acquisition is not always about spreadsheets and hard negotiation. Often it’s about two parties with a shared strategy and vision having a conversation.

While the formal deal came together very quickly, both Zuckerberg and WhatsApp co-founder Jan Koum had been in informal talks for the past two years. They met for the first time  in a coffee shop in 2012. I often say that meeting an owner of a privately held, not-for-sale company for the first time is like a first date; you want to put your best foot forward.  For Zuckerberg and Koum, their first date turned into many more until the deal was finalized over this Valentine’s Day weekend.

“Hello, I’d like to buy your company.” If this were the way I began my phone calls with owners, none of our deals would be successful.

Speaking with owners, particularly of privately held, not-for-sale companies, requires the right strategy and approach. After all, you only have one chance to make a first impression and your goal in the first call is to keep the owner from slamming the phone down and hanging up on you. Learn how get and keep owners on the phone in our upcoming Capstone webinar:  “The First Date”: Contacting Owners and Successful First Meetings.

This webinar will:

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

Date: February 20, 2014

Time: 1:00 PM ET – 2:15 PM ET

Register: https://www3.gotomeeting.com/register/759491582

CPE Credit Available


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Do you work with your family?  Navigating business politics and family dynamics can be tricky, especially when it comes to succession planning and determining the future of your business.  Below are some key areas to focus on when it comes to selling or transferring ownership of a family-owned business to the next generation.


Make sure to involve a valuation professional and knowledgeable tax advisor so you do not run into unintended tax events.  Improper gifting or undervaluing assets can be an expensive mistake.


Because you are dealing with what can be an emotional decision, it is critical to have an attorney who specializes in M&A and has the temperament to work with family dynamics. Bedside manner can be what gets a deal done.


Allow plenty of time for the transaction, say not less than one year.  It can happen much faster, but I have seen it go on for years. Because this is new territory for many of the parties involved, they need time to understand and absorb the vocabulary, process and choices.  While this transaction may seem like a piece of cake to an experienced M&A professional, for those involved in the process for the first time, it is understandably more difficult. Compare it to the first time you bought a car or a house and how scared you were about the whole process.


In my opinion it is better to keep your family than lose it over a business transaction.  Know what issues are important to everyone and, with a good advisor, you can hopefully complete the deal and still have Thanksgiving together.

You can also read more advice on family business & succession planning here.

According to Business Valuation Resources, new analysis shows time needed to market and sell a privately held business is 211 days, up from 200 days in previous analysis.

Todd Nelson, Capstone Valuation Advisor, weighs in on these observations:

“There are many variables that impact the time it takes to complete a private company sale. Those factors include the quality of the cash flows generated by the entity, it’s size in terms of sales, the attractiveness of the market in which it operates, the industry in which it participates, and the current nature of the economy.

All factors must be considered when determining whether a discount for lack of marketability (DLOM) is warranted. Control factors also come in to play as most analysts would not apply a DLOM to the sale of a 100 percent interest.”

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At the beginning of April, American Greetings announced it was going private after being publicly traded since 1958. American Greetings has seen increased competition from both traditional competitors, like Hallmark, and from new competition, like social media.

Here are the top three strategic advantages I see for American Greetings going private.

1)      Shed Costs

Going private the company can shed some of the cost of being publicly traded. While they will not have access to capital markets, as a private company, American Greetings may not see this as an advantage they once did.

2)      Flexibility

Will your earnings take a dip due to a new strategy that has a longer pay-off period? According to CFO Magazine, “The most time-consuming part of being a public-company CFO is…managing short-term investor expectations.”  With a private company, you don’t have to worry about shareholders panicking. Going private will allow the company to make changes without being restricted by their annual reports and quarterly forecasts.

3)     Secrecy

Why broadcast your strategy to your competitors? As a private company, American Greetings will not have to share their strategy in publicly available annual and quarterly reports.  Keeping their strategy a secret from the competition will be advantageous as the company competes in an intensely competitive and diminishing market.

While we normally don’t view it this way, privatization is a type of acquisition. Key shareholders and management will acquire American Greetings to reposition the company strategically.

Let’s face it: the greeting card industry is shrinking. People are moving away from stamping paper cards and putting them in the mail to free eCards. I’ve mentioned before, future demand is king.  If you want your company to grow, you need to be proactive and strategic. American Greetings understands their market is shrinking and is proactively changing their strategy.

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