The Nitty-Gritty on Mergers and Acquisitions

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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?

One of the most prevalent reasons for a M&A is cash.

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.

Greed can be good — but not in this case… and definitely not in the case where Michael Douglas was portraying Gordon Gekko in the movie Wall Street as well.

I’ll explain why greed can be good before finishing this article…

The Waves of M&A’s

There have been 5 waves of M&A’s since the first one between 1898 and 1904 — we’ll focus on the last 3 (you can read about all 5 here, if you would like).
The last 3 waves occurred in 1965-1970, 1981-1990 (which some say really didn’t start until 1984), and then 1993-2000.

The Third Wave

The mergers of 1965-1970, commonly called the Third Wave, were during an economic boom and saw smaller companies merging or acquiring larger
companies — there was a lot of cash being held by companies that was being used to either diversify itself or for a conglomerate.

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.

Stocks and convertible debentures (debt securities that are convertible into common stock) instead of cash was used in many of the transactions to preserve the cash reserves for other M&A plans.

At the height of this frenzy, the pool of suitable acquisition candidates was depleted — basically, it ran out of gas.

Something to note about this wave: a very painful lesson with the conglomerate M&A’s was the practice of placing a successful CEO from one industry into an entirely different industry.

Apparently they were never told nor never listened to the warning that nothing ever beats wisdom honed with experience.

The Fourth Wave

The Fourth Wave (1981-1990) witnessed the perfecting of the hostile takeover as well as the deregulation of industries such as banking, petroleum, and airlines.

The birth of corporate raiding and leveraged buyout was witnessed as well

during this wave, which also included international M&A’s — all this was halted abruptly by the economic recession of 1991-1992.

Everyone had colateral but the cash reserves had basically disappeared.

The Fifth Wave

The Fifth Wave (1993-2000) saw the birth of the ‘intelligent’ M&A — think of it as a seasoned greed.

What happened came from the stockholders — they were tired of the quick share price jumps and wanted something more long-term and sustainable.

Some argue that we are still in the Fifth Wave while others are saying we are in the Sixth wave — either way, 2001 and 2002 saw a near normal level of M&A’s (usually between 50 and 70 per year).

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?

Today, the global economy is not doing very well — which is not conducive to any M&A.

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

started building their cash reserves in order to pay for the expected increase in taxes and hopefully be able to figure what to do with reduced capital, reduce R&D, and reduced number of good and services that will be tested before going to market.

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…

California M&A Activity Reaches Highest Level Since 2009, With Tech Deals Leading The Way



What happens next?

No clue…

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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Available in The HRIS World Resources

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Book Description

Publication Date: May 3, 2011

The easy way to make smart business transactions

Are you a business owner or executive thinking about selling a division, a subsidiary, or the entire company?

Or are you thinking about how you may be able to grow your business by merging with or acquiring other companies?

Or are you a student thinking about making a career in a mergers and acquisitions (M&A) related industry?

In other words, if you are looking for a plain-language, no-nonsense guide about how mergers and acquisitions can affect your company and career, you’ve found your book!

Mergers & Acquisitions For Dummies is your insider’s handbook about the practice of buying and selling companies.

It explains the entire M&A process step by step, introduces you to industry specific terms and acronyms, details the documents used when buying or selling a company, discusses valuation techniques, reveals insights about how to finance deals, provides real world examples of how to structure transactions and bridge valuation gaps between Buyer and Seller, and gives you the basic tools you will need to successfully close M&A transactions.

Plus, you’ll get expert advice on identifying and contacting potential M&A targets, performing due diligence, drafting the purchase agreement, and integrating new employees after the deal closes.

Going beyond the case studies of other books, Mergers & Acquisitions For Dummies is your one-stop reference guide for successfully buying or selling companies.

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Garrett O'Brien

Garrett is the Chairman of the Executive and Advisory Boards for
The HRIS World Research Network

With 20+ years in roles as a client executive sponsor, project manager as well as functional / technical lead, Garrett is sought for his expertise globally.

He has been involved in large-scale and complex implementations since 1991 and has recently moved his operations to be with his wife in Brazil.

Garrett has had the pleasure of working with some of the greatest talents in the industry, and constantly shares his experiences and knowledge through content and webinars.

He has managed somehow to be fluent in Portuguese, German, French and English along the way.

When not working, you will have to be adventurous to stay up with him as Garrett loves motorcycling, gunnery, boating, sailing, flying, and sports fishing.

Garrett’s current roles…

  • Publisher, editor, writer, and owner of 6 leading HRIS system and career blogs which are read by 50,000+ monthly visitors monthly in 90+ countries, 40%+ the audience being decision-makers in their organization (and about half of that being C-levels!).
  • Serves on the Advisory Board for the CoreHR, HRIS and Payroll Community
  • Is the CEO for CGServices USA, focusing on multi-provider, multi-line implementations for HRIS systems
  • Is a Council and Education Member of Gerson Lehrman Group Council, helping institutions of the world leaders meet, engage and manage experts across a wide range of sectors and disciplines.

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