The Nitty-Gritty on Mergers and Acquisitions
What’s Happening with So Many Mergers Lately?
What conditions promote and make a company vulnerable to a M&A?
Mergers and acquisitions — usually acronymed as M&A’s — are not highly common in the HRIS world.
But two recent M&A’s, first Knowledge Infusion and Appirio and then Bersin & Associates and Deloitte, raised some eyebrows in the HR Tech circles.
M&A’s are occurring globally and not just in the HR and HR Tech circles.
I am sharing what I know from being a follower of economics, public policy, business history, and banking…
My academic background was in international economics and finance.
I am not an expert on all this but I have been talking with several who are — and my notes have been collected here.
This all came about thanks to the facebook update by @WilliamTincup about the Deloitte and Bersin M&A, as he was pondering what was going on…
I don’t blame him for the content of this article, but he did plant a seed as many appeared surprised and unknowing about M&A’s.
Just giving credit where credit is due William
So What Sets Off M&A’s?
This is one of the reasons a lot of companies will not sit on a pile of cash — it leaves them vulnerable to a takeover, they can be friendly but usually not, especially when greed is involved.
I’ll explain why greed can be good before finishing this article…
The Waves of M&A’s
The Third Wave
A diversified company is a company with some subsidiaries in other industries, but a majority of its production or services within one industry category.
A conglomerate conducts its business in multiple industries, without any real adherence to a single primary industry base.
At the height of this frenzy, the pool of suitable acquisition candidates was depleted — basically, it ran out of gas.
Apparently they were never told nor never listened to the warning that nothing ever beats wisdom honed with experience.
The Fourth Wave
The birth of corporate raiding and leveraged buyout was witnessed as well
Everyone had colateral but the cash reserves had basically disappeared.
The Fifth Wave
What happened came from the stockholders — they were tired of the quick share price jumps and wanted something more long-term and sustainable.
What stopped the Fifth Wave were the events of 9/11…
The Common Denominator
The underlying condition in all of the waves is this — the ‘targets’ of the M&A’s were sitting on cash… a LOT of cash.
And if you’re a company that has a lot of collateral but is cash poor — that cash is looking very sweet at the moment.
OK, What is Happening Today?
Even the collateral for most of the companies has shrunk in value — the real estate bubble everyone said didn’t exist, well — it popped.
However, companies have financial analysts that are paid to determine how much cash is going to be needed in the coming months as well as in the coming year or two.
Enter the Obama administration and their concept to tax businesses on just about everything they do (we’ll leave out if this is right or wrong, as well as the politics of it all).
The companies are realizing that the cash reserves they used to use (along with bonds and stocks) to build capital will probably run dry if the Obama plans come to fruition — not to mention the heft tax bills they would be needing to meet.
What this meant for them is the monies they used to create capital, to fund research and development, and to test new goods and/or services before they hit the market will be shrunk by the much higher level of taxes they will have to pay.
Once realizing this, a lot of companies
Face it, if you knew you had a huge tax bill coming, you would be cutting back and buildling your cash reserves as well.
For a company with solid collateral, it doesn’t matter the economic conditions — acquiring a cash-rich company that is on solid footing is going to look like the best thing to do, period.
Enter Knowledge Infusion and Appirio…
Enter Bersin & Associates and Deloitte…
I was not privy to the their final decisions to merge but companies like Appirio and Deloitte are facing some huge tax bills this year — as were Knowledge Infusion as well as Bersin & Associates.
But under a M&A, that tax bill is much easier to manage with more collateral as well as more cash.
And this would be true of whoever else out there that has solid collateral as well as other companies rich in cash…
To bring more ‘evidence’ to this discussion, a day after I finished drafting this article, TechCrunch had an alert about? M&A’s in California are hitting record levels…
What happens next?
Even if I did, sharing would only drive the price of the stock down…
After all, this is where greed can be good.
What Are Your Thoughts??
✔ What have you heard about the M&A of KI/Appirio and of B&A/Deloitte? what can you add to this conversation?
✔ For the more knowledgable in our audience, what can you add abou M&A’s and the current economic climate?
✔ What is your company doing to prepare for the coming tax bills?
✔ Please share your thoughts in our comments section below!
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Publication Date: May 3, 2011
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