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Driving M&A Success in 2011

BY George F. Brown Jr.

The increased pace of merger and acquisition activity late in 2010, including some huge deals, suggests that 2011 will be an active year. Low interest rates, significant cash on many firms’ balance sheets, and stock prices that are low enough to attract buyers but high enough to move sellers off the sidelines all reinforce that possibility.


Decisions on acquisitions are always a challenge. There is extensive literature that documents the too-high percentage of failed combinations, ones that failed to reward shareholders with a positive return on their investment. Yet most firms are motivated to consider acquisitions as an element of their growth strategy, citing the potential contributions from acquired firms, including ones targeted to fill gaps in a firm’s portfolio and ones seen as having the potential to help create a game-changing position. And often it is the case that an acquisition can bring assets and competencies that are otherwise either unavailable or that would take years to develop.


The hardest acquisitions to evaluate are those that involve a decision to enter a new line of business and new markets. “Bolt-on acquisitions” are far simpler, involving familiar business environments with known characteristics and risks. Often, the acquisition target in such situations is quite familiar to the acquiring firm as one of the well-known players operating in the same market. But when the acquisition option involves a new and unfamiliar situation, the need to ask the right questions becomes paramount.


Most corporations have established solid processes of due diligence to evaluate acquisition candidates, spanning a wide spectrum of economic, legal and other factors. Such assessments are critical to decisions likely to yield success in the end.


In analyzing acquisitions that succeeded and ones that failed, one insight that has emerged is that this strategic due diligence process should also focus on the overall market in which the acquisition candidate operates and link insights that emerge to the capabilities of the acquiring firm itself. Quite a few of the problems of failed acquisitions had nothing to do with the firm that was acquired. Rather, they could be traced to changes taking place in the broader business environment that the acquiring firm was ill-prepared to address.


The starting point for this assessment is a set of questions that are already part of the due diligence process for most firms. Is this a good business to be in? Do the firms in this business make money, and does the forecast point to a positive future outlook? Does the business create legitimate value for its customers, and is this value recognized? Are the firms in this industry that create value for their customers rewarded for their contributions, or is the business characterized by aggressive price-buying?


Adverse answers to such questions trigger the caution flags, and appropriately so. But even when the answers are positive and the future outlook appears rosy, it makes sense to develop scenarios that are disruptive. 


Sometimes the scenario involves changes that are taking place in the business environment (such as technology innovations, new regulations, distress situations involving current players in the market, etc.). Other times the scenario involves a firm implementing a strategy that creates value in a new way, or involves changes that undermine the current foundations for industry profitability. And sometimes the scenario involves growth through the industry’s expansion into new global markets or adjacency businesses. In all of these cases, when it is possible to identify a disruptive strategy that creates a “leadership position” that can be sustained, it has to be taken as a serious possibility. 


Whether the disruptive scenario is one involving a great upside or a significant downside risk, it has to be included in the acquisition evaluation and plan. That evaluation and plan must start with self-examination on the part of the acquiring firm. The acquiring firm must ask if it is the “right firm” to implement such a strategy and whether there are reasons why it is better positioned for success than are others (e.g., expertise in the market, synergy through existing operations, core competencies that are transferrable, assets that can be leveraged). 


It also must ask if the business model changes that will be required are practical in terms of its demands on resources (including financial and human). It must assume that competitors will react, and decide if their reactions can be thwarted in order to ensure that the pro forma forecasts associated with the strategy are realized. Far too often, the acquisition decisions and business case assume a “steady-on-course” future for the acquired company, when the reality in fact involves significant change, disruption and requirements for investment of time, money and expertise.


The business environment of 2011 and beyond is one in which this guidance is likely to be of even greater importance than normal. There are significant changes taking place in many markets, as they recover from the recession, as the forces of globalization introduce new competitors and sources of innovation, and as slow-moving trends in the economy motivate decisions to implement new business models. Evaluating the potential for disruption and determining if your own firm is in a solid position to gain during such times can allow decisions on acquisitions to result in success stories that strengthen your prospects for sustained profitable growth.


George F. Brown Jr. is CEO and cofounder of Blue Canyon Partners, a strategy consulting firm working with leading business suppliers on growth strategies.

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Revving Up for Speed

BY CSA STAFF

It’s no secret that site speed can directly impact the performance of a site and ultimately affect revenue, conversion and page views. But surprisingly, new research shows sites are getting slower — not faster. According to data conducted from Strangeloop Networks, a Vancouver-based provider of Web acceleration solutions, the average page-load time of a site at the end of 2010 was just over 11 seconds, compared with seven seconds earlier in the year. 


As merchants add more dynamic features to their sites, performance can start to drag. In response, retailers big and small are seeking technology solutions that can handle their growing sites, not only during critical periods but all year-round.


AutoAnything — a San Diego-based online retailer that specializes in custom automotive accessories and performance parts — first sought a solution in fall 2009 that could keep the site running smoothly despite its various performance-zappers. With more than 4 million items to choose from on its image-rich pages, AutoAnything also touts live chat, a recommendation engine and site personalization.


As a result, page response-times were extremely slow, with the home page taking up to 10 seconds to load.


“The site was getting very bloated,” said Parag Patel, chief technology officer, AutoAnything. “As our pages got bigger, it was easy to lose focus and control of the user experience. We were growing the site and didn’t want to lose customers at the same time.”


With a small engineering team and site traffic of more than 2 million unique visitors each month, it turned to Strangeloop for its Site Optimizer service to ensure a smoother shopping experience.


The cloud-based solution service allowed the company to get up and running very quickly with literally a flip of the switch. No additional software or hardware was needed. 


“Although we were concerned with correcting the problem fast, our main criteria was return on investment,” Patel said. “We didn’t want to jump the gun and make a decision in the heat of the moment. Instead, we set up a test to measure the strength of the solution before deciding if it was the best fit for us.”


During the test period, it was arranged that 50% of AutoAnything’s visitors received website content that was accelerated by Strangeloop. Meanwhile, the other 50% of visitors received content served from the retailer’s centralized servers and existing content distribution network.


Almost immediately, AutoAnything experienced an instant revenue increase from the solution. It cut the page load times in half, resulting in a 9% increase in conversion rate, an 11% increase in average ticket size and a 12% to 13% increase in sales. The initiative resulted in a full return-on-investment in just weeks.


The gains continue to be felt year-round. 


“We have been using the solution for over a year now and are thrilled with the results,” Patel said. “It has handled our busy seasons, as well as our normal traffic flows, extremely well. Site speed isn’t seasonal; retailers always have to be prepared.” 


But be warned: Retailers that turn to site optimization solutions have more work to do after implementation. Careful monitoring is critical. Dynamic pages, coupled with ever-changing browser standards and shifts in user flows through sites, all add up to a constantly shifting set of performance requirements. 


AutoAnything monitors the site often, Patel said, but many retailers do not take post-implementation as seriously.


“Some retailers have dramatically reduced their page-load times, only to let them creep back up months later,” said Strangeloop president Joshua Bixby. “This can create a barrage of complaints from customers, as well as a significant drop in traffic and conversions. Retailers can’t just fine-tune their sites and move on; they need to stay on top of the progress.”


Companies also run into trouble by waiting too long to tackle performance problems.


“The longer these issues are put off, the more expensive it can get to fix them,” Bixby said. “The bottom line is that retailers need to take performance seriously and give it the attention it deserves. Those that do will meet customer expectations, and those that don’t will be left behind.”

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E.Villanueva says:
May-04-2013 10:12 am

Impressive
I did find this site very useful. Articles and information posted are really impressive that gives the reader a great idea about different topics. google+

E.Villanueva says:
May-04-2013 10:12 am

I did find this site very useful. Articles and information posted are really impressive that gives the reader a great idea about different topics. google+

S.Chen says:
Jan-21-2013 10:37 am

autoAnything
"AutoAnything turned to a cloud-based solution to 
decrease page load times, which helped boost revenue" - that is great!

S.Chen says:
Jan-21-2013 10:37 am

"AutoAnything turned to a cloud-based solution to 
decrease page load times, which helped boost revenue" - that is great!

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Focus on: Social Media 


BY CSA STAFF

Even some of the savviest mall owners admit there was a time when they considered social media participation optional. But by 2010, most of the major shopping center developers, managers and owners had jumped on the Facebook and Twitter bandwagons — and social media programs have since eclipsed traditional marketing methods at many properties.


A fourth-quarter 2010 study by Alexander Babbage, entitled the “Shopping Center Social Media Benchmark Report,” found that social media tools and networks are making it easier for shopping centers to relay information, interact with customers and generally stay connected — and that is what is largely driving mall buy-in. 


In fact, since Babbage began collecting data two quarters ago from 1,842 U.S. shopping centers 300,000 sq. ft. or larger, use of Facebook and Twitter at those centers has grown by 78.2% and 54.5%, respectively. Facebook is, not surprisingly, the main social medium for malls, but Twitter is gaining popularity as well. (Visit chainstoreage.com for more study results.)


Two of the country’s top 10 developers (based on number of centers) are also among the busiest social media users. Beachwood, Ohio-based Developers Diversified Realty had 32.6% of its larger centers (300,000 sq. ft. and up) using Facebook and Twitter in the fourth quarter of 2010. Cleveland-based Forest City had 75% of its centers on Facebook and Twitter as of the fourth quarter.


“We are very happy with our progress,” said Stephanie Shriver-Engdahl, director of advertising for Forest City. Getting the majority of its centers online, however, wasn’t an overnight affair. 


“We took a crawl-walk-run approach,” Shriver-Engdahl said. Fear of public postings and concerns about the time it would take to create and monitor the sites gave Forest City pause, but not for long. In 2006, the company was a social media observer, but by 2008 it was ready to trial its Shoptopia online social experience at two shopping centers. A successful test paved the way for an additional 14-center rollout in 2009.


The Shoptopia program features brands and retailers found at Forest City shopping centers, providing a platform for shoppers to interact with their centers and the tenants that inhabit them. But it is not a replacement for traditional marketing. Forest City builds multi-layered marketing programs tailored to each center; a typical plan might include print and broadcast advertising, direct mail and billboard, layered with Facebook and online advertising.


Developers Diversified started watching social media 24 months ago but didn’t immediately participate. “We didn’t want to follow because everyone else did, but rather to ensure it was a fit for our customers,” said Dawn Lecklikner, regional VP shopping center marketing for Developers Diversified.


The company’s loyalty program, ShopStar, includes both Facebook and Twitter functions to allow its malls to communicate with customers. The initiative, which also features exclusive member contests, discounts and offers, was introduced internally in February 2010, then went live in April at 19 lifestyle and enclosed mall properties. 


This year, Developers Diversified will debut a Facebook application and a mobile application for ShopStar designed to encourage shopper interactivity with each property’s retail tenants — something retailers should leverage, Lecklikner said.


“To maximize social networking in our malls, we encourage tenants to become engaged with us, to see us as partners,” she said. “If retailers will give their store-level people the tools and guidelines to communicate personally with the local community, they will reap the rewards,” she said.


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