3M, the maker of Post-it, will acquire Scott Safety from Johnson Controls for $2 billion to build up its safety division. This is the second largest acquisition for 3M after its purchase of Capital Safety, a maker of fall protection equipment such as harnesses, lanyards, and self-retracting lifelines, from KKR & Co. for $2.5 billion in 2015.

Scott Safety’s products include respiratory-protection products, thermal-imaging devices, and other products for firefighters and industrial workers. The company will become a part of 3M’s safety division, which accounts for 18% of the company’s sales in 2016 and is the second largest division.

3M is using acquisitions to boost slow growth in the US and to combat industry challenges in the consumer and electronic sector. In 2016, 3M executed a number of acquisitions and divestments as part of its realignment strategy. The company sold its temporary protective films business, safety prescription eyewear business, and pressurized polyurethane foam adhesives business. 3M also purchased Semfinder, a medical coding technology company.

Here are two lessons for leaders who are thinking about company growth.

1. Acquisitions can jumpstart growth.

When organic growth options such as, opening a new store or adding new products, fail to grow revenue significantly, it may be time to look at external growth. Strategic leaders evaluate shifting industry dynamics to anticipate future demand and then use acquisitions to reposition their companies to capture a share of the high-growth market. When completed, the acquisition of Scott Safety will add 1,500 employees, $570 million in revenue, and a slew of products immediately to 3M’s safety division.

2. Acquisition isn’t just about getting bigger.

Acquisition is truly about recalibrating your business and focusing on strategy. Although 3M is acquiring Scott Safety, the company also divested of a number of businesses in 2016 and is paring down from 40 business units to 25.

On the other hand, the seller, Johnson Control is also realigning their business with this divestment. “Consistent with our priority to focus the portfolio on our two core platforms of Buildings and Energy, we continue to execute on our strategic plan.” said Johnson Controls Chairman and CEO Alex Molinaroli.

Photo Credit: Dean Hochman via Flickr cc

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

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

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

Are you exploring all your options for growth? When you think about a growing your credit union or CUSO through a “merger” strategy, you may be tempted to focus on consolidation alone. While combining two credit unions can be a pathway to growth, it is important to recognize it is just one of a number of options available to you. Consolidation may not be the best solution for your organization and may not help you add the value you had hope for.

In a CU Insight article, Kirk Drake, CEO of Ongoing Operations, a credit union service organization, and John Dearing, Managing Director of Capstone, discuss the growth options available to credit unions and CUSOs and how to use strategic mergers and acquisitions to maximize your growth potential.

Read the article on CU Insight.

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.”

 

Are you looking for growth? If you are like most leaders, the answer is probably “yes.” Growth is essential to every business regardless of industry, size or geography. Even if you are growing now, you must continue to grow to be successful in the future. At Capstone we believe in the maxim “grow or die” and are dedicated to helping our clients grow.

We recently had the opportunity to share our passion for growth with the National Association of Credit Union Service Organizations (NACUSO). Capstone Managing Director John Dearing sat down with NACUSO to share our story of bringing strategic mergers and acquisitions to the CUSO world.

What’s your current position and can you give me a brief overview of what it is you do in your work?

In short, we are growth engineers and I’m a Partner and Managing Director at Capstone.

Capstone helps our clients develop and execute strategic, external growth plans – investments and acquisitions, partnerships and alliances. It is my responsibility to make sure our clients are happy. I oversee delivery of client engagements. One of our measures of success is if clients come back for more. We make sure we have the right team to be able to work with clients over long periods of time. We consider it an accomplishment to have worked with some of our clients for decades. In fact, we are proud to continue working with our first client from 1995.

Read the complete interview on the NACUSO website.

Last week, thousands of investors gathered at Berkshire Hathaway’s annual shareholder meeting in Omaha. Warren Buffett, perhaps one of the greatest strategic acquirers, shared his insights for successful acquisitions. There are two pearls of Buffett wisdom, reported direct from the meeting by Dealbook that I’d like to highlight in this post.

Looking at the Big Picture

Buffett insists that the most important thing isn’t negotiating every fine point of a deal, but being right on the broader prospects of the potential takeover target.

I can confirm this from my own experience as an M&A advisor. Far too often I see company leaders getting caught up in the minutiae of a deal. While details do matter, the success of your acquisition doesn’t lie in the technicalities. You can get every detail exactly right, but if you acquire the wrong company, your acquisition is doomed to failure.

Think about buying a car that’s the exact shade of blue you want, but the transmission has been trashed! Or imagine purchasing your “dream home” that’s located in the wrong state. No matter what color the car, or how beautiful the house, neither is a good purchase when you take in the whole picture. If you’re getting bogged down in the weeds, take a step back and look at your strategic objectives.

Evaluating Future Demand

According to Buffett, “The mistakes [in mergers and acquisitions] are always about making an improper assessment of the economic future.”

When talking about is erroneous analysis of future demand for the product line of the business you’re about to acquire.

Understanding future demand is critical, because without demand for its products and services, any business risks becoming obsolete. So when you think about acquiring a company, consider what the market will look like in 5 or 10 years. Who will the customers be? What will be the demand for these kinds of products or services? Is this sector shrinking or growing? Without taking the market dynamics into consideration, you risk acquiring a dud.

These two points from Buffett may seem simple, but it can be easy to get caught up in the excitement of a deal or to over-focus on the details. Remember to take a step back and assess the entire situation, taking into account your own strategic goals and future demand. Evaluating an opportunity with this broader perspective will help increase your chances of a successful deal.

Photo credit: Fortune Live Media via Flickr cc

Last week Capstone Managing Director John Dearing had the opportunity to attend the 2016 NACUSO Annual Conference on April 4-7, 2016.

Over 400 people attended the Las Vegas event, exchanging ideas and listening to industry experts. Conference topics included investment services, insurance services, innovation and operations, technology, member business lending, mortgage services, and business development.

Erik Wahl, an internationally recognized speed artist, author and entrepreneur, delivered the opening keynote. Wahl’s message “UNTHINK” inspired CUSO leaders to expand creatively beyond traditional thought patterns and unlock new ideas.

John Dearing attended the Conference because of Capstone’s many years of experience in helping CUSO clients grow through M&A.  “It’s an exciting time to be in the CUSO space,” John reported. “Leaders are thinking of new ways to grow and we’re finding increased interest in pursuing strategic M&A as an avenue for growth.”

Below are some snapshots from the trip:

Keynote speaker Erik Wahl presents at the 2016 NACUSO Annual Conference.

Keynote speaker Erik Wahl presents at the 2016 NACUSO Annual Conference.

Erik Wahl's artwork.

Erik Wahl’s artwork.

CUSO leaders listen to industry experts at the 2016 NACUSO Annual Conference.

CUSO leaders listen to industry experts at the 2016 NACUSO Annual Conference.

All photos taken by John Dearing, Managing Director, Capstone.

It’s no surprise that credit union consolidation continues; it is estimated that there were 65% more mergers in 2015 than in 2000. Overall, there were about 15% fewer credit unions in 2015 than in 2011. While there are fewer players today than in previous years, the credit union market is not shrinking or in decline. The number of credit unions with over $500 million in assets grew by 21% from 2011 to 2015, which means there are fewer, larger players. Consolidation is not limited to credit unions alone. We are also seeing consolidation of service organizations that provider products, services and technology to the credit union space as well.

Given the current environment, what’s the best course of action for CUSOs? One the one hand, for credit union service organizations (CUSOs) serving credit unions exclusively it means there are fewer credit unions to sell to, but on the other hand, since each player is bigger there are potentially more opportunities for CUSOs.

There are CUSOs right now proactively trying to find value and expand in today’s market. For example, CUSO currently only servicing the east coast may use strategic M&A to quickly gain a footprint in a new geographic market in order to service the growing member base of the credit unions they service.

External factors are also affecting the credit union and CUSO industry. When we look at U.S. M&A activity as a whole, 2015 was a massive year. We are in an environment where deal flow, the number of transactions, size of transactions and valuation multiples are at a peak. And peaks are followed by troughs so 2016 could be an interesting year.

There are a ton of deals going on and a lot of money chasing those deals. This means there are new competitors that CUSOs need to consider when investing in organizations. More and more people from outside the credit union space see the opportunity and are trying to figure out how to enter the industry. For example, private equity are doubling down and looking to expand in technology and financial services especially. While there is more competition from outsiders looking to invest in the same opportunities, CUSOs also provide unique access and benefits to non-exclusive credit union organizations looking to enter into the credit union world.

* This post was contributed by John Dearing, Managing Director at Capstone

Strategic mergers and acquisitions can be a powerful tool for growing your CUSO, but much of your success depends on finding the right partner. How can you identify the right partner for growth?

The best way to begin your search is to identify the ideal markets in which to grow your organization. Once you have researched and selected the top markets for growth, you can begin searching for potential partners in that market that will help your CUSO grow!

Capstone is excited to be partnering with the National Association of Credit Union Service Organizations (NACUSO) for an exciting webinar. NACUSO helps credit unions explore the use of CUSOs and the delivery of non-traditional products and services.

In this webinar, led by John Dearing, Managing Director of Capstone, you will learn how to use a demand-driven approach to search for the right partner systematically and efficiently. John has led a successful acquisition program for nearly twenty years, including over ten years of helping CUSOs grow through external growth and M&A.

Date: February 16, 2016

Time: 12:30 – 1:30 PM ET