The Case for Being a Pursuer — Buy-Side Mergers & Acquisitions
As spring actually starts to turn to summer after a wet and cold winter, signs of confidence are popping up everywhere for renewed growth, development and expansion opportunities by companies in many different business sectors. A recently reported 2010 survey of more than 800 senior corporate executives worldwide, the Capital Confidence Barometer conducted by Ernst & Young and the Economist Intelligence Unit, found that 57 percent (57% versus 33% six months earlier) of businesses say they are likely or highly likely to acquire a rival in the next 12 months. Fully 47 percent (47% versus 25% six months earlier) of businesses indicate they expect to reach an acquisition or merger deal within the next 6 months. That appears to be a lot of renewed business opportunity and strategic development thinking at work.
Supporting the Capital Confidence Barometer results, another recent survey conducted by corporate communications firm Brunswick Group revealed that top bankers and lawyers (typically the grease that facilitates mergers and acquisitions) were even more optimistic, with 67% saying they thought the deal-making business was clearly on the increase.
Not surprisingly, increased availability of debt financing in the marketplace is a significant factor in prospective acquirers returning to the deal-making table.
For prospective buyers, there are significant strategic growth and development opportunities out there. We are now well into the 21st century and doing business is faster, more aggressive, and often profoundly international. Business success, even locally, requires keeping up. As many industries continue to consolidate, serious consideration should be given continually to what are the best strategies for staying ahead of the competition. Sometimes, refining a unique niche makes a lot of sense. Sometimes, recognizing the importance of being bigger and stronger is the obvious choice.
Identify the right target
Experts in the conduct of corporate merger and acquisition transactions generally agree that for a prospective buyer, there are key pre-requisites that need to be identified in a prospective target:
• Strong management—there really is a formula whereby 1+1 can equal 3, but it requires the courage and forethought to bring aboard leadership that is tested and proven.
• Market leadership—I recently heard a terrific metaphor (pardon the politically incorrect connotation)—“strapping two one-legged persons together doesn’t create an Olympic runner.” The key to strategic success is identifying and bringing in market strength, not weakness.
• Sustainable competitive advantages—a little like a good NFL draft where position needs are successfully filled.
• Financial stability—a successful combination hits the ground running—it makes little sense trying to dig out of someone else’s financial difficulties.
• Excellent growth potential—the intent is to grow and prosper.
• Potential business synergies—an obvious pre-requisite, but often overlooked. And not only must there be clear business synergies, there must also be clear cultural and “personality” synergies between the target and the pursuer.
As anyone who has participated in an acquisition or merger transaction will attest, the process of M&A is just as much an “art” as it is a “science.” Not only is it necessary to understand the operations, the accounting, the legal details, and the financial formulations, but it is critical to understand the nuance between pursuer and pursued relative to style, culture, personality, and all the other unique elements that differentiate one organization from another.
Michael Roy is Director of Mergers & Acquisitions at The Brenner Group where he has focused primarily on middle market advisory and transaction engagements. Prior to his affiliation with The Brenner Group, Mike held posts at firms such as Pacific Marketing Partners, Corporate Finance Associates, and Lehman Brothers. Mike has authored multiple “white papers” relating to the food and beverage industries in the U. S., to commercial real estate acquisition opportunities, and to environmental technology developments. He graduated from the University of Notre Dame and received a Woodrow Wilson fellowship for post-graduate study.
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