With the economy grinding and credit markets contracting, many corporations are rethinking their growth strategies. Economic conditions have certainly changed the considerations of many deals and undermined others - most recently transactions involving the privatization of
Clear Channel Communications and Brazilian miner
Cia. Vale do Rio Doce's $90 billion play for Xstrata PLC. You might think the volatility would have strategic buyers scaling back or sidelining deals, but that's not necessarily the case, says
David Carney, a principal in Deloitte Consulting's M&A practice.
"For U.S. strategic buyer deals over $1 billion in value, there was a jump in February to pre-credit crunch levels. Of course, one month does not make a trend, but it does tell us that dealmakers are not sitting on the sidelines." Carney attributes the jump to the strong balance sheets and low debt of many corporations and the amount of equity capital available.
What advice does Carney have for companies looking to grow, while also insulating themselves from the unexpected?
- Use a fact-based, data-driven approach to deals;
- Avoid "group think," where deal teams "talk themselves into recession or lower their expectations;" and
- Employ scenario planning by playing out how different economic conditions might affect a deal
Carney expects an uptick in inbound deals in the months to come as the dollar languishes, but says it's wrong to assume outbound deals are a bad bet. "While executive teams will rightly scrutinize outbound deals, most deals are done with a 20-year horizon, and with a 20-year strategy it's a wash." Remember, too, he says that when you buy a company in a high currency market you own that high-currency revenue stream.
Of course, all this is not to say that fear doesn't loom large for dealmakers. "It goes
against all our instincts to be confident [during uncertain times], and
fear is in every board room and executive leadership team," says Carney. "There's an old saying in finance, though, 'with
fear comes opportunity,' and the best managed companies will
seek that out." - Suzanne Stevens
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
