The Race Against Time
December 7, 2009
I had the chance recently to talk to Gerhard Watzinger, who heads up corporate strategy and business development for McAfee.
In addition to convincing me that my computer is long overdue for a virus, he had a lot of interesting things to say regarding his approach to deal sourcing and integration.
One of the key takeaways was Watzinger's strategy for integrating venture capital-backed companies. He basically described it as a race against time.
"Our first priority with [VC-backed] businesses is the integration because they usually don't have a sustainable business model."
Coupled with Watzinger's prediction that if they're not part of the anticipated consolidation, a lot of smaller companies will "just disappear," this is not exactly a ringing endorsement for the VC model.
If I had to guess, sustainability probably took a back seat when the trade sale replaced the IPO as the most likely exit for VCs. This probably explains too why late-stage venture capital businesses never seem to graduate to straight private equity deals.
The Financial Times identified that there's been a re-appearance of softer lending terms in deals recently. Clayton Dubilier & Rice's acquisition of cleaning service provider JohnsonDiversey, for instance, incorporated a PIK toggle note, while Blackstone Group's Pinnacle Foods deal was partially funded with roughly $900 million of covenant-lite loans. Throw in a handful of dividend recaps, and the FT's use of "overheated" to describe the activity almost fits.
It seems awfully quick for lenders to start handing out covenant lite loans at this point, but this probably reflects how wide the division is between the haves and the have nots in the current market. It's the same reason it seems like every deal of note these days is coming from healthcare, tech or education.
Covenant lite loans, to me, seem more like a symptom than a cause, which wouldn't necessarily qualify the market as overheated. It's the race to compete that usually blurs the lines, but I think we're still pretty far removed from that being a problem.
Dealbook got an advanced look at remarks from Martin Lipton at Bruce Wasserstein's private memorial service. It's definitely a worthy read.
He opened his memorial with an anecdote from 1981 in which Wasserstein oversaw the DuPont/Conoco deal.
Bruce structured a deal that outmaneuvered Seagrams, was successful despite a higher offer from Mobil, and resulted in DuPont acquiring all of Conoco. The investment banking world recognized that DuPont’s success was the result of the brilliant strategy and tactics of Bruce Wasserstein.
It made me wonder where the "legends" are going to come from in this current era. That's not to say that there aren't a ton of valued bankers out there. It's just that without the battles for assets that you used to have, it's hard for anyone to distinguish themselves beyond check sizes.
There are still a few fights. I'm sure Tim Ingrassia, Robert Kindler and David DeNunzio -- involved in the ag-industry faceoff between Agrium, CF Industries and Terra Industries -- have some pride resting on the outcome.
By and large, though, M&A has been more about muscle than maneuvering in recent vintage.
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