Collins The Trend Tracker
by Mike Collins
May 31st, 2009

M&A in an Environment of Recovery

Regardless of whether you think the recovery will be long and shallow or more rapid, as recoveries have been in the past, signs point increasingly to the beginning of a recovery. Interestingly, the motivations behind the search to acquire other companies remain largely the same as they were during the go-go period the market enjoyed until the end of 2005. The primary motivation for acquisitions continues to be rounding out the buyer’s product offering. While buyers may consider buying a company with completely overlapping products in order to increase their market share, it is more likely they will aggressively pursue a company that brings products the buyer does not offer. It is increasingly common in acquisitions, as well as joint ventures, for companies to seek to become a single source provider to their customers. The more often your customer must buy products from a competitor, the more likely that competitor is to win additional business that should be yours.

Companies also continue to be interested in building out the geographic area they cover by buying a company that serves an area contiguous to or overlapping with their own. Companies generally don’t seek to buy other companies that serve an area that is geographically distant from their current service area, leaving un-served states in between. We refer to this as growing by “creep” rather than by “leap.”

One subtle shift that has occurred among potential buyers is a somewhat stronger tendency to view acquisitions targets from the standpoint of being able to fold the target company’s operations into those of the buyer. When the market was stronger, companies had more of a tendency to view a company being acquired as a source of additional capacity. The number of plants that have been shut down in the last 18 months, however, virtually assures the reversal of this trend as soon as the market recovers. Companies will once again need the additional capacity available through acquisitions. Finally, given the number of companies and private equity funds that have made us aware of their desire to buy door and window manufacturers, the M&A market in this industry is likely to recover even more quickly than the market itself.

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