2016 continued be a strategic, rather than a financial buyer’s market and strategic buyers deployed large cash reserves to pursue growth through M&A. Unlike financial buyers, which typically look for a three to five years return on investment, strategic buyers can afford to pay more due to their long-term focus.

The middle market has been eager to use M&A as a viable tool for growth. Despite a challenging economic environment, activity in the middle market remained stable in 2016, dropping only 3.5% in 3Q 2016.

As we close out 2016 and look forward to 2017, here is a roundup of the most popular posts of the year from the Successful Acquisitions blog.

  1. The Most Important Thing about M&A According to Warren Buffett
  2. 10 Signs You Should Walk Away from a Deal
  3. M&A Activity after the U.S. Election: Analysis and Outlook
  4. 7 Strategic Questions to Ask Before Pursuing Mergers & Acquisitions – New Webinar
  5. How to Avoid Irrational Decision-Making in M&A
  6. 5 Tips for Taking a Strategic Approach to M&A in 2016
  7. Is Middle Market M&A on the Rebound?
  8. Growth Through Acquisition – Exit Readiness Podcast Interview
  9. How to Break Bad News without Sinking Your Acquisition
  10. What Is Happening with Valuation Multiples Today?

Thank you for reading and we will see you all in 2017.

Photo Credit: Barn Images

2015 was the “strongest year for deal making on record,” according to Thomson Reuters.  Global deal value reached $4.7 trillion, a 42% increase from 2014, and U.S. deal value reached $2.3 billion, a 64% increase. Despite this record-breaking activity, the number of deals announced globally remained relatively flat and in the U.S., the number of deals actually decreased by 1.65% from 10,129 in 2014 to 9,962 in 2015. This is mainly due to the large number of mega deals (deals over $5 billion) announced in 2015.

As we look forward to what will most likely be another year of exciting M&A activity, let’s take a look back at the posts from the Successful Acquisitions blog that you, our readers, found most interesting.

  1. Why You Don’t Need a 51% Stake to Control a Business
  2. CVS and Target Pharmacy Acquisition, Divestiture and Co-branding
  3. Strategic vs. Financial Acquisitions – What’s the Difference?
  4. How You Can Manage the M&A Process: Tools for Success
  5. Strategic Acquirers at an Advantage in Today’s Market
  6. Why ConAgra Plans to Sell Ralcorp Less than 3 Years Later
  7. New Webinar – “Leadership Essentials for Successful M&A”
  8. When Organic Growth Stalls, Consider M&A
  9. Pharmaceutical M&A: The Rush to Acquire
  10. 2014 Record Breaking Year for M&A
Photo Credit: Barn Images

If you’re reading this post, you’ve probably noticed the Successful Acquisitions Blog has a new look. You can still find the latest on middle-market M&A at our redesigned site.

This mobile-friendly site features a fresh design that’s easy to read on all your devices. So now you can follow middle-market M&A whether you’re in the office or on the go.

As before, expect brief, insight-packed posts on M&A news — plus enduring insights on successful growth through M&A.

The Successful Acquisitions Blog is a rich resource for any company owner or executive interested in new pathways to growth. So check out the site and let us know your thoughts!

CEO Paul Villella of HireStrategy recently shared why he sold his company ─ despite not actively looking to sell ─ and the results one year after the acquisition.

Paul addressed a packed room of CEOs, CFOs and senior-level executives from the Washington-DC area at “Grow or Die: A Panel Discussion on Middle Market M&A” hosted by Capstone and Access National Bank on April 23 at the Tower Club.

Paul, who founded HireStrategy in 2000, grew the firm from a three-person startup to the leading staffing firm in the Washington, DC area and to one of Inc. Magazine’s fastest growing firms in the U.S. By 2014, the company had reached $33.17 million in revenue. Paul was focused on investing in, and growing, the business when he received an unexpected phone call about a potential acquisition opportunity from the Addison Group, a Chicago-based staffing firm.

In his comments, Paul said he had a “walk away” attitude for most of the acquisition talks. Like many owners, he was not interested in selling his company. HireStrategy was growing without the acquisition – so why sell?

Paul Villella, CEO of HireStrategy, shares his acquisition story.

Paul Villella, CEO of HireStrategy.

In our 20 years working with not-for-sale transactions, we’ve found this attitude is not uncommon. There are many reasons why owners say “no” to selling and also many reasons why they say “yes.” It is up to strategic-minded buyers to find the right equation that will change “no” to “yes.” Acquirers should remember that this equation includes much more than financial incentives.

So why did Paul decide to sell HireStrategy? “The Addison Group was willing to truly partner with us and structure the deal in a way that would allow me to continue running the business with my team,” he said. Paul and the Addison Group arrived at a solution that suited both parties.

Under the agreement, Paul maintained control of HireStrategy and, equally important, retained his core team. In addition, HireStrategy kept its own brand and his staff received improved benefits. The Addison Group was also willing to pay an aggressive multiple for the firm because it was a key part of its strategy plan to expand on the East Coast.

The staffing industry is notorious for poorly handled mergers, but HireStrategy’s transaction was successful. One year after the acquisition, the company has reached all its 2014 targets and is on track, or ahead, for all of its 2015 goals. In addition, the majority of the staff has stayed on.

During his presentation, Paul explained the process of the acquisition, including how and when he involved his investors, outside advisors, and legal experts, and how and when he communicated with the rest of his team. On a more personal note, Paul discussed the opportunities for growth not only for HireStrategy for himself as a leader.

Mike Clarke, CEO of Access National Bank, and David Braun, CEO of Capstone, also commented on trends in lending and banking, and the state of middle market M&A today.

HireStrategy’s story prompted lively engagement and questions from the executives in the audience. Our hope is that through this event and events like these, owners and executives will continue thinking about external growth as a pathway that holds great potential.

“Grow or Die” was our third event hosted by Capstone and Access National Bank.

Below are some photos from this exciting event.

Interested in strategic growth and mergers and acquisitions? Contact Capstone today.

 

Mike Clarke, CEO of Access National Bank speaks on lending trends at "Grow or Die."

Mike Clarke, CEO of Access National Bank speaks on lending trends at “Grow or Die.”

 

CEO, CFOs and senior-level executives in the Washington-DC area gather for Grow or Die: A Panel Discussion on Middle Market M&A.

CEO, CFOs and senior-level executives in the Washington-DC area gather for Grow or Die: A Panel Discussion on Middle Market M&A.

 

David Braun, CEO of Capstone comments on M&A at "Grow or Die"

David Braun, CEO of Capstone comments on M&A at “Grow or Die.”

 

Grow or Die David Braun Paul Villella Mike Clarke

David Braun, Capstone; Paul Villella, HireStrategy; and Mike Clarke, Access National Bank at Grow or Die: A Panel Discussion on Middle Market M&A.

 

As we close out 2014, I’d like to wish you happy holidays from myself and my team here at Capstone.

Thank you for reading the Successful Acquisitions blog. I’ve enjoyed writing about the exciting deals that took place in 2014 and am anticipating another year of robust M&A in 2015. I look forward to resuming my commentary and seeing you back here in the New Year!

Stay up-to-date! Subscribe to the Successful Acquisitions blog.

Research indicates that up to 70% of mergers and acquisitions fail to meet stated objectives, and of those 50% will destroy shareholder value. Those are daunting statistics. Yet acquisitions remain a top means for growth in companies in the U.S. and around the world. So a key question for any organization looking at M&A as a growth strategy is how to mitigate the risk associated with acquiring a new company and marrying their employees to yours?

Key Drivers of M&A Failure and a New Focus Area

While 2014 has seen increased M&A activity, the reason that many deals fail isn’t due to the hard financial data. A deal’s success absolutely hinges on the human factor—otherwise known as the “soft skills.”

Some observers considering “soft skills” focus primarily on workplace culture as the driving factor for reducing M&A risk. While culture clearly is important, I believe the foundational issue in M&A failure is leadership (or lack thereof). I say this because the competitive advantages that companies may possess in areas such as manufacturing, R&D, or marketing are squandered if a best-in-class leadership is not in place to leverage these capabilities for increased growth and financial prosperity.

The Research – Leadership Skills Needed for M&A Success

This perspective that leadership is a foundational component of M&A success is not just a hunch. I recently quantified the impact of leadership on M&A success in my doctoral research at the University of Pennsylvania in a unique joint program between the Wharton business school and the Graduate School of Education. My research identified the specific leadership skills needed for successful mergers and acquisitions. The outcomes of this work were highlighted in the article “The Leaders That Make M&A Work” in the September 2014 issue of Harvard Business Review.

My goal was to understand the role of the collective leadership capabilities of acquirer and target companies as a predictor of M&A success. Mergers and acquisitions represent major change events for both the acquirer and the target, and successful change efforts are driven by the leadership of both organizations. With this understanding as a foundation, I addressed two critical questions:

[list3]

  1. What leadership skills predict M&A success for acquirer and target companies?
  2. Do senior executives or middle management have a greater effect on M&A success?

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My research revealed a new understanding that specific leadership skills predict M&A success for the acquirer and target. And while there are similarities between the two M&A leadership frameworks, there is variation as noted in the table below.

M&A Leadership Risk Profile

Acquirer/Target Leadership Skills that Predict M&A Success

Finding the Right People

The second question I hoped to answer, about whether senior executives or middle managers have a greater effect on M&A success, offered intriguing results. As expected, senior executives have a greater impact on M&A success for acquirers. However, I was most surprised to learn that for targets, the greater effect comes from middle managers. These findings suggest acquirers may want to focus their attention on middle managers in addition to senior executives when considering who to keep within the new organization post-deal.

Impact of Leadership Capability on Growth

With respect to growth, companies that possessed the correct M&A leadership capabilities as either the acquirer or target achieved significantly greater growth two years after the deal finalization than those without the profile.

What does this mean for you? Simply put, focusing on leadership capabilities will greatly contribute to the success of your acquisition. Take a look at your own company as well as the target company and identify the right leaders with the right leadership skills. This will give you a proven competitive advantage in your acquisition and will prevent you from being part of the 70% failure rate.

It’s that simple.

*This post was written by Dr. J. Keith Dunbar, Founder & CEO of Potentious.

About the Author

Dr. J. Keith Dunbar established Potentious to provide a forward-thinking consulting service to senior executives and corporate M&A teams to minimize the risk of and maximize the probability of successful decisions that meet financial outcomes. Leveraging groundbreaking research on the role of collective leadership capability in successful M&As, his unique method transforms due diligence, by providing a means to mitigate the risks that otherwise limit or cancel out the potential to meet financial growth targets associated with the M&A.

Dr. Dunbar serves as Director of Talent Management at Leidos, supporting more than 23,000 employees. Prior to this role, he was Director of the Leadership Academy and Global Learning Solutions Group with the Defense Intelligence Agency. Dr. Dunbar retired from the U.S. Navy in 2006 after a celebrated 21-year career in naval intelligence. He received his Doctorate of Education from the University of Pennsylvania in 2013.

 

About Potentious

Potentious® is a boutique mergers & acquisitions consulting firm specializing in the identification of the leadership capabilities in companies that lead to successful M&As. The Potentious M&A Leadership Risk Profile™ methodology evaluates the collective leadership capability of the acquirer and target companies to quantify the level of risk in a particular M&A. To learn more, visit www.potentious.com.

Let’s admit it right away: This is a trick question. The correct answer is usually not the first answer.

Here’s a classic example from the annals of corporate America: Union Pacific thought they were in the business of railroads—the commonsense answer. In reality, they were in the business of mass transportation. Had they recognized this early enough, they might today be flying planes or building hybrid cars.

Here’s a more recent example. A client of ours supplying the upper end of the bicycle industry thought they were in the business of making brake mechanisms. Their special capacity was in lightweight solutions, and we resolved that they were in fact in the business of making racing bikes faster.

This realization led to a strategic expansion into gear systems. It took a process of careful self-examination to discover what now looks obvious but was not when we began.

So exactly what business are you in? Among all the mass of activity your company is engaged in, where is the beating heart? Step back, look at the big picture, and ask yourself: ‘‘What is our business really about?’’ The answer should be as short as you can make it:

  • ‘‘We are in the custom car auto parts business.’’
  • ‘‘We are in the investment advice business.’’
  • ‘‘We are in the residential community planning business.’’
  • ‘‘We are in the organic fertilizer business.’’

You may need to take several shots at this. There is a tendency to either be too granular (‘‘railroads’’ rather than ‘‘transportation’’) or too global (‘‘creating exceptional customer satisfaction’’). Remember that growth is your purpose. You need to define your business in a way that sets a trajectory broad enough for expansion and focused enough to stay on track.

So what business are you in? Don’t underestimate how powerful this apparently simple question can be. Your decision will almost certainly impact the trajectory of growth you choose.

What makes this so important is that in a world of rapid change and expanding global markets, you face an almost intolerable surfeit of opportunities. Without being anchored in a strong, unmistakable self-definition, you will be easily dragged this way and that.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

It’s hard to believe 2013 is almost over! Thank you for reading my blog and helping me launch Successful Acquisitions. Wishing you happy holidays and see you back here in the New Year!

In performing due diligence, I recommend you look not only for risks but also for opportunities.

That’s how I approach due diligence for our Capstone clients.  As we examine the seller’s operations and books, we place every new discovery in one of three color-coded “buckets:”

Red Bucket: Deal Changers. This is information that materially alters what you thought you were buying. These are the true surprises that can seriously affect the deal, such as a previously unknown pending court case on a key technology or a likely decline in revenue.

Yellow Bucket: Acceptable Risks. These are new items that you discover about the seller that you can live with but can’t ignore. For example, a new product that you expected in six months may not be ready to go to market for a year. You would probably not cancel the deal because of this, but it’s still something you will have to take into account and alter your plans accordingly.

Green Bucket: Integration Opportunities. This is information that adds value and synergies to the deal, usually in the form of cost savings or revenue growth. A typical example occurs in the purchasing department, where the seller may be paying a significant percentage more than you would because he is not ordering in the volume necessary to reach price breaks.

The bucket method will help you to identify risks and opportunities within the larger focus of your strategic objective. I find the bucket method allows for constructive discussion between both buyer and seller on possible solutions to any risks that may be identified.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

The Chief Executives Club of Rhode Island has invited me to speak at its breakfast meeting on November 7 in Providence, Rhode Island. The club, whose members are senior executives, annually hosts 10 of these meetings, where America’s top business thought leaders and authors share their views on a wide variety of leadership topics.

I am especially looking forward to discussing Successful Acquisitions with these senior executives.  I wrote the book to help CEOs and executives to create an M&A process for their companies. One of my objectives was to find an approach to the topic that company leaders would be comfortable with. I’m excited to share my passion for growth, to gather insights and to discuss current leadership issues.

A recent Deloitte survey noted frequent misalignment between CFOs and company directors about the strategic rationale of M&A. The study concludes that CFOs and board members should align their M&A strategy for greater success.

Naturally, I’m not surprised by these findings. The likelihood of successful acquisition would increase if all parties shared the same strategy. After all, a successful acquisition must be 100 percent strategic in concept, planning, and execution. If you have multiple strategies driving your acquisition, you are bound to run into some problems.

In fact, I believe your acquisition strategy should be grounded in fulfilling one single need with each company you buy. Each time you should have only one reason for acquisition. To some, this may seem a little strange, as in “Why not kill two birds with one stone?”

Buying a company is like hiring new employees. You wouldn’t hire one person to fill simultaneous needs in sales, accounting and operations. The qualifications for each position are unique and you look for three different individuals to fill those roles.

The same concept applies to making an acquisition. Having a single, clear purpose keeps you focused on which markets to look at and which companies to consider. If you try to make one company fulfill multiple needs, you embark on a dangerous path that blurs your decision-making.

Vague thinking can lead to bad acquisitions and problematic integration. Although it may seem that killing two birds with one stone is cost-effective, it is likely to prove far more expensive in the long run. Trying to fulfill multiple needs through one acquisition meets none of them well. Singularity gives focus, and focus generates results.

*This post was adapted from David Braun’s Successful Acquisitions, available at Amazon.com

Thank you for helping me launch my new book, Successful Acquisitions.

Yesterday’s launch webinar was a huge success.  A special thank you to Jon Ward and Bob Nirkind from AMACOM, the publisher of Successful Acquisitions, for participating in the webinar.

My hope is that you will use the book to develop your own acquisition strategy and have fun in the process. Growth is exciting!

Don’t forget to pick up your copy of Successful Acquisitions. It’s available now at Amazon.com and at Barnes & Noble. If you have any questions about Successful Acquisitions or M&A feel free to contact me.

Stay tuned for more news from me and updates on the book.

Mark your calendars for April 10th! It’s the official launch date for my new book Successful Acquisitions.

To celebrate Successful Acquisitions, I’ll be hosting a free, live webinar. This is your chance to hear about the inspiration for writing Successful Acquisitions and ask me questions about the book. I’m excited to hear from you and address your comments.

Reserve your webinar spot today, as space is limited: https://www3.gotomeeting.com/register/486789006

Successful Acquisitions is based on my experience as a third party consultant in mergers and acquisitions. Everything in the book is drawn from real-world experiences with clients I’ve worked on over the last twenty years, helping them grow their enterprises through acquisitions.

I wrote Successful Acquisitions primarily for business people, in a language that they could and understand. My goal is that you — as a CEO, CFO or senior executive — can use Successful Acquisitions to grow your company with a systematic and time-tested M&A process.

You can pick up your copy of Successful Acquisitions at Amazon and Barnes & Noble. I hope you enjoy the book and see you April 10th !

Reserve your webinar spot today, as space is limited: https://www3.gotomeeting.com/register/486789006