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Home » Blogs » Ken MacFadyen

Getting a Read on Strategics

By Ken MacFadyen, MU Blog

April 27, 2010

Strategic buyers tend to be the mystery players in the market. You know private equity will be interested in any business that throws off cash flow and shows steady, recurring revenue. Strategic buyers, on the other hand, are much more nuanced in their approach, which makes them a much tougher read in a lot of circumstances.

This is all the more apparent after a survey of corporate development executives conducted jointly by Mergers & Acquisitions and Investment Dealers Digest. The purpose of the poll, which had 200-plus respondents, was to check the temperature of corporate acquirers, but the only conclusive deduction I can take away from the survey is that corporates do indeed see the current landscape as a buyer's market.

No surprise there, but how these strategics will capitalize on the environment remains an enigma to some degree.

Of those polled, 68% had pursued deals in the past six months, through either a dedicated initiative or opportunistically. Most, 33%, described their M&A strategy as "opportunistic tuck-ins," while 20% and 13% view their approach as "horizontal consolidation" and "geographic expansion," respectively. Nearly a quarter, 23%, described their strategy as vertical in nature, targeting new products or services, and 10% said they were seeking transformational deals.

The survey was produced in conjunction with a web seminar scheduled for this Thursday, featuring the likes of Millipore's Ram Ramakrishnan and 1-800Flowers.com's Jon Brodsky, among others.

It did seem to buck some of the conventional wisdom regarding strategics, identifying that nearly three quarters will pursue dilutive transactions in certain circumstances.

For those with an asset to sell, they may be disappointed to find that strategics are, by and large, shopping the discount rack. The greatest channel of deal flow, according to the poll, isn't the public market or even private equity portfolios -- it's rivals in distress.

What that means is that while many have strong balance sheets and excess cash, few are willing to spend it in a way that could be considered conspicuous consumption.

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