A Buyer’s (Middle) Market
By Chris Blees, amaaonline.com
It has been proven in past economic downturns that companies that invest heavily in the right kinds of marketing and strategic planning are the ones that will capitalize the most on the situation and likely thrive when the market turns around.
While a good marketing strategy will enable you to grow your business organically by increasing your market share, another way to accomplish this, and accelerate the growth curve, is to acquire the market share, products, services and employees of existing businesses. Now this is easier said than done, but right now everything is on sale at, sometimes, drastically reduced prices. While there are bargains to be had, the trick is making the right purchases that will benefit the long term success of the company.
It is easier to talk about acquiring a company than actually doing it, which is why the majority of acquisitions are deemed unsuccessful, especially in the public markets. However, the ratio of successful versus unsuccessful deals isn’t down to buyers simply being unlucky but because they most likely executed at least one of the following common mistakes:
- Overestimation of the synergies that will come from the acquisition;
- Underestimation of the time needed to integrate the combined operations;
- Failure to appropriately plan for and manage the post-acquisition integration;
- Overpaying for the business;
- Overleveraging debt and working capital;
- Lack of understanding of the business being purchased; and
- Personal financial gains conflicting with suitable risk/reward analysis.
While the overall economy has certainly had a hand in derailing, in some cases, good deals, the majority of failed transactions are a function of poor planning and bad execution.
Therefore, when considering an acquisition strategy, it is important to ensure that the associated risks are mitigated as much as possible by creating and following a comprehensive acquisition plan, which should include the following:
- Understand the business you are in and where you are headed;
- Perform a detailed SWOT (Strengths, Weaknesses, Opportunities & Threats) analysis of your existing business;
- Create a strategic plan, taking into account the SWOT analysis, to get from where you are today to where you want to be;
- Involve all critical functions of the business and create an integration team (sales, operations, production, logistics, etc.);
- Define the ideal acquisition target (which will almost certainly not exist!);
- Research potential targets and rate them using metrics created in the strategic plan;
- Be very selective and patient throughout the acquisition process;
- Undertake thorough due diligence and involve the integration team at all stages of the deal; and
- Understand your financial capabilities and required return on investment and stay within these limits.
Following a comprehensive acquisition plan will certainly increase your chances of success. However, while detailed planning is critical, why would you want to grow through acquisition and take on additional risk in a time of uncertainty?
Here are a few reasons:
- It’s a buyer’s market! Values are depressed, largely due to the contraction of the credit markets and stagnant or declining financial performance.
- Companies are being stress tested in a very bad market, so it is clearer to get an understanding of the likely ‘worst-case’ performance going forward. In addition, staffing cuts and efficiencies may already have been initiated.
- Excess capacity that you might have can be put to good use fully integrating an acquisition.
- Synergies created by the acquisition could increase the value of the combined operation by more than the sum of its parts.
- If you planned on selling in the next few years but just saw the value of your business drop significantly, this could be a way to quickly make back some of that lost value to ensure your original exit strategy stays on course.
- Potential targets that are not interested at first will almost certainly remember you when they eventually decide (or are forced) to sell, which could put you in a very strong position.
- Actively searching for acquisition targets will almost certainly guarantee a higher level of post-acquisition success than acting on deals that are presented to you by third parties.
Growing through acquisition can drastically accelerate a business’ growth plan, and right now there are bargains to be had, but the process needs to be well planned and executed to greatly enhance the outcome.
Chris Blees is the president and CEO of BiggsKofford Certified Public Accountants and BiggsKofford Capital Investment Bank. He sits on the Board of Advisors for the Alliance of Merger & Acquisition Advisors (AM&AA), where he chairs the Certification Committee and serves as the lead instructor for the Certified in Merger & Acquisition Advisor (CM&AA) designation. For more information, please visit amaaonline.com.
Target future uncertain following CFO retirement
MINNEAPOLIS — The unexpected announcement that Target EVP and CFO Doug Scovanner will retire on March 31, 2012 has investors speculating about the reasons for his departure following the recent exit of other key executives.
Analysts at Bernstein Research pointed to the fact that no successor has been named, suggesting that the retirement was not a long planned for event. However, the firm said it believes that despite the unexpected news, this appears to be a true retirement and doesn’t anticipate seeing Scovanner in a CFO role at another major company.
Scovanner will remain in his current role for the next five months in order to ensure a smooth transition once his successor is named, the company said.
“Throughout his tenure with the company, Doug has been a valuable partner in developing and executing our strategy,” said Gregg Steinhafel, chairman, president and CEO. “He has made many significant contributions to Target, and as a result of his financial leadership, Target continues to deliver outstanding sales and earnings growth and generate superior returns for our shareholders. I am grateful that we will continue to benefit from his experience and expertise during this extended transition timeframe.”
Scovanner, 55, began his career at Dayton Hudson Corp., of which Target was a division of and in 2000 was renamed Target Corp., in February 1994 as SVP finance. He became CFO later that year and was named to his current role as EVP and CFO in 1999, making him one of the longest-serving CFO’s at a Fortune 500 company.He currently serves as a member of the board of directors of TCF Financial Corporation a national financial holding company.
Before joining Target, Scovanner spent two years at The Fleming Companies in Oklahoma City, Oklahoma as SVP finance. Prior to that, he was with Coca-Cola Company and affiliates for 12 years, the last five years as VP and treasurer of Coca-Cola Enterprises.
“With Target’s strong core business and clear strategies for expansion, its prospects for continued profitable growth have never been brighter,” said Scovanner. “I feel extremely fortunate to have played a role in guiding the financial and strategic direction of this company over the years and I am committed to ensuring a seamless transfer of responsibilities to my successor.”
Though Scovanner’s departure may have been a planned retirement, the timing is unfavorable for Target, which saw the departure last month of Steve Eastman, president Target.com, following the retailer’s troubled website revamp, and the loss of Michael Francis, who as chief marketing officer was leading Target’s entrance into Canada, to JCPenney.
According to Bernstein Research, Target has some work to do in filling the CFO role, but with a number of strong internal and external candidates likely seeking the role, the retailer should not have tough time finding a quality replacement for Scovanner.
CitiI analysts echoed those sentiments, and a report went as far as naming some potential candidates.
"We believe Target currently has two candidates within the company that arewell-positioned to fill the spot: Corey Haaland, SVP, financial planning analysis and tax (11 years with Target); and John Mulligan, SVP, treasury and accounting (six years with Target.)"
Fuel rewards, inflation drive up identical-store sales at Winn-Dixie
JACKSONVILLE, Fla. — Retail Inflation, a strong fuelperks! rewards program and increased sales at remodeled stores helped grow identical-store sales at Winn-Dixie Stores by 3.3% during the first quarter of fiscal 2012. This increase was also aided by a 5.5% increase in basket size, but partially offset by a 2.1% decrease in transaction count. The company announced thatnet sales for the first quarter were $1.6 billion, an increase of $48.2 million or 3.1% compared with the same period in the prior fiscal year.
The company reported a net loss of $24.1 million, or 43 cents per diluted share, for the first quarter of fiscal 2012, an improvement from the net loss of $76.8 million, or $1.39 per diluted share, for the same period in the prior fiscal year.
Peter Lynch, chairman, CEO, and president, said, “I am very pleased with our first quarter financial performance. We generated substantial sales and Adjusted EBITDA growth over the prior year, driven by continued positive sales growth from the previous quarter and expanded margins despite an inflationary environment. Further driving this outcome was prudent expense management and a merchandising and operational focus on delivering personal, fresh and fun experiences for our guests. In addition, we successfully grand-opened two more transformational remodeled stores that are generating promising financial results and building brand equity in their respective markets. Through the first five weeks of the second quarter, we continue to experience identical-store sales growth that has exceeded our first quarter performance, in line with our expectations.”
Winn-Dixie said it continues to expect adjusted EBITDA for fiscal 2012 to be in the range of $120 million to $135 million. Among other factors, the company’s Adjusted EBITDA guidance is based on its current expectation that identical-store sales for fiscal 2012 will increase by 2.5% to 3.5%.