Keeping Score On the Key Drivers In M&A’s Future

The strategic forces that have prodded companies of all sizes and in all industries to acquire extensively in the 1990s still pack enormous power. That bodes for a continued strong level of dealmaking, say prominent strategic planners who help companies map their futures. But if the drivers haven’t changed much, corporate responses have evolved into a diversity of new guises and new formats. Sorting Out Trends – Globalization, technology, deregulation, consolidation, and a handful of other well-recognized forces remain the principal drivers of m&a as the end of the 20th Century looms. How they are playing out is a constantly evolving story. The fallout differs from time to time, for example in the creative new ways industries are utilizing technological advances. And many industries still are trying to figure out how they should revamp to meet future challenges. Periodic Pulse-Taking – Yesterday’s super acquisitions may be today’s faded darlings as competitive conditions change in concert with powerful strategic forces. Continual review of businesses keep major companies in a constant restructuring mode. Scouting the Alternatives – Joint ventures and strategic alliances, many linked to value-chain engineering, are being used more frequently. While they have appeal in many settings, they also present serious operating and governance problems that can erase the benefits of lower investments compared with merger prices. The advice is to try them on with extreme care and caution. Consolidation Plays – Roll-ups and consolidations within fragmented and mature industries continue at a rapid pace. The denominator is that these markets can become anachronisms in their present forms as the forces of strategic change swirl around them. The Right Mix – Restructuring is no temporary phenomenon. It reflects managerial zeal to put the optimal set of assets together under one corporate roof, cull out the businesses that would be better off with a new owner, and take advantage of the strong prices in the m&a market to get a handsome “fee” for initiating the transfer. Restructuring will slow only when managements are convinced that they indeed operate the “right mix.” Sorting Out Trends M&A: We have generally attributed the heavy activity in m&a to such strategic drivers as advancing technology, globalization, deregulation, among others. Are any of them starting to lose or gain influence at this point? Are any of them of less or more concern to your clients who are interested in making acquisitions or restructuring their companies than, say, a year ago? Strauss: If you think about the key drivers and which ones are going to be most important going forward, globalization clearly remains among the most influential. This trend will continue to intensify as markets, customers, and channels all become more globalized. We see the impact of it in the increasing number of cross-border deals that are being done. I think that consolidation will continue to be a major force over the next several years. But I expect that to change over time. Right now there are a number of industries in which there is overcapacity, including financial services and telecommunications. Those are industries where the fragmentation in the market will rationalize, meaning that eventually we will move to a state where there are several big players, several very small players, and not many in the middle. In terms of changes on the horizon, in technology there is a move toward more full-service offerings and a product/service bundle. You see that with Compaq and Digital Equipment and with various acquisitions and strategic alliances. People are looking at it as a way to gain access to technology, and that trend will become more prominent. There are customers who want complete solutions, and who do not want to have to buy them piecemeal. McKelvey: We see customers using information technology in creative ways to serve customer needs. We see it in a variety of industries, such as health care services in which companies are combining different segments of the health care services continuum to better serve the needs of patients and insurers. It is taking place in other industries as well. We recently advised on the deal in which Northwest Airlines acquired a controlling interest in Continental. What you see there is two companies combining systems as a means of better serving their customers. Some key needs of airline passengers, such as an integrated network of flight connections and a broadened frequent-flyer program, are being met by leveraging information technology. Hodge: I have worked most directly in a very asset-intensive industry, chemicals. This is an industry that is restructuring because it is experiencing consolidation, particularly in the basic and intermediate areas, combined with an unusual demerger process, as pharmaceuticals, agricultural chemicals, and life sciences split out. I believe that trend will continue for a while. There are plenty of companies that are still confused about exactly where they are in the marketplace. In that area and some of the other asset-intensive industries there will be a continuing acquisition trend as a way to gain market and customer access – with a very careful look at where the targets are in the value chain. Historically, the basics and intermediates producers didn’t know what someone two steps down the chain needed or wanted, much less four, five, or six steps down the chain. Suddenly, they are being forced into situations where a lot of those assets are, at best, break-even and in many cases under water on a return-on-capital basis. A lot of those players are stepping back and saying, “Wait a minute. Where has my market gone, and how do I access that part of the marketplace?” That is going to make things interesting. Holland: There continues to be very strong m&a momentum due to many of these drivers. Many of them are industry-specific issues, such as deregulation, and it’s really a function of which industries are being deregulated. In the past few years we have seen a lot of activity in aerospace and defense and in airlines. These went through deregulation in the last 10 years. There is also strong momentum around financial services and banking and in telecommunications. Utilities might be the next industry on the horizon. Over the next five years it is going to go through very fundamental deregulation, and there will be a lot of divestiture activity, as well as acquisitions and consolidations. Globalization may be overplayed a little bit as a driver of activity in the sense that we are seeing a lot of international acquisitions in industries that might be questionable as to whether they truly are global businesses. There are probably only a handful of businesses, based on the economics of the business, that are truly global, such as automobile manufacturing and pharmaceuticals. However, we are seeing many international acquisitions that might even border on diversification. The acquisition targets are companies that are in the same sort of business, but whether the economic benefits are there remains to be seen. Prouty: A client that talked to me a couple of months ago reminded me that five or six years ago we had worked on a plan to expense themselves to survival, but now they needed help growing themselves to success. I think the number one issue that is driving merger and acquisition activity is the need to execute major, step-change growth with the realization that a company just can’t get growth organically. That has manifested itself in a couple of different ways. At some companies, getting that growth means moving into new products. In health care and high tech, we are seeing companies do acquisitions that give them access to new products that they need to move on to a higher business growth curve. In more mature industries, such as chemicals manufacturing, companies are taking on acquisitions that may allow them to become a more dominant global player. For these companies, you either acquire or divest; if you can’t get to number one or two in your marketplace, then get out of the market. Strategic buyers, much like financial buyers, are almost taking a portfolio management approach to acquisitions to get growth, whether it is in new markets, new products, or what have you. And they are divesting businesses that no longer fit their portfolio, their hurdle rates, their growth factors, etc. The central concern that my clients are expressing is how to get maximum growth. That will manifest itself in different ways, depending on the industry you are dealing with, the maturity of the industry, and where that particular company is positioned in that industry. Berger: I think two things are basically driving the activity. One is stakeholder value creation, with the key stakeholders being the customers, the people who own the stock, and the employees. The other is to sustain continual competitive advantage. This is resulting in industry reshuffling and industry restructuring. The fine chemicals industry, for example, is undergoing a huge change because it consists of little niche businesses without critical mass, and people are beginning to look at the margins and how they can continue to compete in that market. Campbell Soup, which is spinning off its cats and dogs, is beginning to look seriously at stakeholder value creation. In pharmaceuticals, there has been a lot of unbundling and rebundling of industries. In many cases, the business are getting growth but their value-creation potential is limited. I see massive industry shifts on a global level. Look at what is happening on a global level at large companies, and check out the smaller companies that are trying to understand where they fit in the equation, knowing full well that their goal is to ultimately be acquired by a larger company. Periodic Pulse-Taking M&A: In a number of restructurings, companies are shedding onetime premier performers that were brought in through acquisitions, such as Campbell’s frozen food spin-off, Black & Decker’s plan to sell its housewares division, and PepsiCo’s spin-off of its restaurant operations last year. Is anything safe any more? Is there such a thing as a good acquisition for perpetuity? Or do we have to face the fact that a good acquisition can run out of gas after a certain period of time? Strauss: Well, what is a good acquisition? In an industry that is unattractive, there may be consolidation opportunities to take advantage of economies of scale and restructuring opportunities for improved profitability. For example, in industries like financial services, where the acquirer gets to rationalize capacity (e.g., physical assets) and achieve huge economies of scale in promoting new ways to access the market, like the Internet, there are big opportunities. However, it is unclear whether even with these economies the acquirer can realize value through the acquisition. Another place where acquisitions make sense is where you can achieve growth. I am always skeptical about people overpaying for growth, particularly when they are making very large purchases. But if the strategy focuses on smaller purchases or on buying a specific strategic asset or capability, like R&D capability, a special technology, or a distribution channel that the organization doesn’t have but can be obtained quickly, acquisitions may make sense, depending on the price. If that isn’t the case, acquisitions have to be questioned. But, every company makes bets. Some of them are going to work and some of them are not. Prouty: A number of clients are asking us to help them design an alternative organization structure that would give them the flexibility downstream of either making additional acquisitions or existing businesses, either through sales or spin-offs. They are looking at moving toward creating a shared services entity for support services that is independent of its individual business units. Their thinking is that they are going to make additional acquisitions and additional divestitures. They want to have the flexibility to do that and to avoid the pain and suffering of integration and decoupling. Hodge: We have all seen enough failures to realize that mergers are really like marriages. Nobody goes in with the intention of seeing it come apart. I have seen them fail for all kinds of reasons, so I don’t have a pat answer that they just run out of steam. But we have found consistently that the failure to figure out how to integrate or not integrate is where some of the biggest problems arise. The old cliche is that everybody opens the champagne when the deal is made, but then you look around and ask, “Who is responsible here?” Scouting the Alternatives M&A: In view of the continued flux in product and service markets and industry structures, are there any new approaches to engineering acquisitions beyond the standard recognized objectives? That may include emphasis on the value chain, the product mix, or the customer base, for example. Prouty: With regard to moving up and down the value chain, I find that clients are more and more looking to handle these functions not so much through a pure merger or acquisition but through a joint venture or an alliance. The idea is how to get greater control across the value chain without actually having to own the hard assets. We are seeing with our clients a lot more joint ventures and alliances between customers and suppliers, and in some cases competitors. Berger: My experience is that alliances haven’t been working well. The comments I get is that it looks great on paper but when you have to make it work, you have all the same problems as with a merger. There are culture differences and the partners don’t have common measurement systems, so that has be engineered. It actually amplifies some of the problems that were there before. Holland: There are certain situations where alliances make sense. But often they disappoint. If there are two companies with different technologies, skills, or needs, they can work out an arrangement, such as a technology or marketing arrangement. When a company wants to lower its risk and cash investment in some kind of a venture, an alliance can make sense. A company that is “placing bets” may use a lot of alliances. But I think they are fraught with complications, and more often than not they lead to disappointing results. The whole issue of control and accountability makes the probability of failure higher than in acquisitions, which themselves have a pretty high failure rate. McKelvey: The most successful joint venture is one where boundaries can be clearly defined around the business. You can set up separate compensation systems and separate accounting systems, and the venture has well-defined goals. It is when the joint business is linked too closely to the existing operations of both entities that you begin to have problems. Strauss: In my view, most mergers break down in the integration stage. The more you move toward a merger model that requires significant integration, the bigger the challenges. Where you have those boundaries, there is a better chance of success. Take the consulting industry. A firm may be good at implementation and may want to move into strategy development. Can anyone do that by acquisition? It would be difficult to achieve. There would be very different cultures and very different skill sets to manage. What might work is for the implementation specialist to form an alliance with a focused firm. M&A: Are we basically saying that these alternate formats are not seriously challenging m&a as mechanisms for responding to strategic trends and gaining competitive advantage? Prouty: I spend a lot of time working with clients on postmerger integration and I have found that the greatest source of both value erosion and underdelivery of expected benefits is failure to fully address and manage the culture and people issues of the deal. An example is a commodity type of company that makes an acquisition to move into new product areas. Let’s say the target is a biotech firm with a lot of scientists, technicians, and professionals. If you try to merge these two culturally different organizations, where the target’s people are going to be small players in a big company that doesn’t understand who they are, what they do, and what motivates them, I don’t see that working without major problems. Typically, the only way the deal is going to work is if you don’t try to integrate but hold the acquired business separately. You may set up some type of joint venture or alliance, but the operating governances are going to be absolutely critical for success. Clear responsibilities and clear operating governances are essential. I have seen too many instances where a large company has acquired a boutique firm, such as in consulting or specialty manufacturing, tried to bring it into a huge, monolithic organization, and wound up killing it. At the end of the day, there is no value left. Nibbles vs. Bites M&A: Because of those problems in bringing the small company into the larger, bureaucratic organization, do you see any rise in minority investments where the small firm can retain operating independence or in various forms of strategic alliances that are not joint ventures? Hodge: That may be used frequently in the high-tech or biotech industry. But in the asset-intensive sectors, that direction is pretty much out of favor. I have seen a lot of portfolios with a number of minority interests in sort of half-baked ideas with no clear control structure or value realization plan. We don’t see a lot of these companies doing what used to be known as diversification acquisitions. I don’t think they disappeared from the market, but the corporate acquirers have recognized that that is not their game. There are huge LBO funds and venture funds. Those are the financial transaction folks who can squeeze value out. Anytime a corporate senior executive comes to me and says, “I’ve got an idea for an unrelated diversification,” I say, “Let’s take a look at it. But I want you to explain to me why you think you are going to be smarter than anyone out there on the LBO side.” Strauss: There may be some value to the minority investment in the high-tech area. You get an opportunity to dip your toe in the water, see if you can leverage the technology, and in a couple of years decide whether to take a bigger bite and buy the company. The technology industry is changing so rapidly that it is very hard for mid-sized and even larger technology firms to make a lot of bets. They can’t focus their bets and they don’t have the kind of capital that they need to make a lot of bets. One way for them to help save capital and to link up with what might be the next wave of the future is to do it the less expensive way through a strategic alliance or minority investment. Weighing Alliances M&A: Will we see more of the Northwest-Continental type of alliances as opposed to complete corporate combinations at the megacompany level? Prouty: My reaction to Continental-Northwest is that it is a fallback posture. They were looking at an acquisition or a merger and they saw that that was not going to work because of major cultural barriers, as well as differences in cost structures and work rules. They needed to get the compliance of the workers. So, I saw this as a fallback that says a merger won’t work and the only way to get value of the combined entity is through an alliance, because of the huge cultural gaps and other issues involved in a traditional merger or acquisition. McKelvey: As an adviser on that deal, I can say that the Continental-Northwest alliance allows them to capture 90% of the synergistic value of the merger of those two companies without incurring all the dissynergies associated with a full merger. The majority of the synergistic value in airline consolidation is created on the revenue side. Hodge: I am not sure where to draw the line between a merger and certain alliances. A number of chemical companies are talking about moving major blocks of assets. Maybe it will be a merger, maybe it will be an alliance. There is a lot of movement going on out there. Consolidation Plays M&A: Are any new strategic drivers and strategic trends emerging? Are any new developments or subsets emerging out of existing trends? McKelvey: One important trend is the continuation of the roll-up of fragmented industries. There are a lot of reasons why that has created value, although usually it is because of economies of scale on the cost side. Another key reason that roll-ups have become so popular is the dichotomy in valuations between the private and public markets. With the IPO market as hot as it is and the need for critical size to become public, doing industry consolidations and roll-ups is a way for an LBO firm to create significant value for shareholders by flipping a company when it reaches $50 to $100 million in revenues. Hodge: Chemicals and possibly steel and autos are already on the downside of the cycle, so, you are going to see capacity squeezed out in the next couple of years and recombined, just like the last cycle those industries went through. The cycle is supply-driven, not demand-driven. Underlying demand, although there are some questions about Asia, is okay. But the cycle is on the downside for many sectors of these industries. Prouty: I have seen a new trend of acquisitions in the professional services area because of the need to sustain growth by getting a critical mass of people. One of the reasons given for the proposed mergers between Big 6 accounting firms and consulting firms is that the companies are growing so fast, and thus have a scarcity of needed resources. They believe that combining companies will help address this problem. Some of the high-tech companies, with their growth, are looking at bringing on 2,000, 5,000, even 10,000 people in a year. People skills are one of the things that I see as a new driver for some acquisitions in select industries. I am also seeing a countertrend to mergers and acquisitions in the drive by more companies for alliances. These companies believe that the value of intangible assets is greater than the value of tangible assets. There view is that they want to own the information highway along the value chain, but they don’t want to own all the hard assets along the value chain. Berger: I tracked the WorldCom and the America Online phenomena. There is a lot of restructuring in that industry, with people picking up different pieces of the market. WorldCom bought a company from America Online called ANS. The acquisition is critical because the company literally runs the switchings on the Internet. There is a lot of that going in that field, and I don’t know whether anyone can fully comprehend it because so much of it is specific to some particular technology area or market. But those kinds of acquisitions are going on in a very substantial way. Switching companies are an example. That is an underlying driver of what is going to facilitate some odd m&a combinations. The more you get into it, the more you sit back and say that nobody really has a handle on what is going on here. Takeoffs on Pure Plays M&A: Although diversification is out of favor, some combinations seem to resemble just that. In telecommunications and high technology, acquirers are gobbling up a variety of businesses seemingly to prepare for whatever develops and commercial banks are moving into investment banking. What kinds of bets are these companies making? Prouty: They are redefining the industries. Their view is that they are no longer in the banking business, they are now full financial services providers. KPMG illustrates that trend. It has organized its services by lines of businesses, but those business groups, for example, do not include one called “telecommunications.” Instead, KPMG has a group that it calls ICE, for information, communications, and entertainment. If you look at a lot of the acquisitions that are occurring, those three different segments are acquiring each other, because the technologies, the products, and the markets are converging. So, I think that one of the things that is happening is that these people are saying they are no longer in a narrow industry but in a new, broader industry. Those acquisitions are part of the strategy in the redefinition of industries. Strauss: There are certain industries in which the companies are making bets about what they think the future will hold. Whether the customer wants that or not, we don’t know. We don’t know whether a customer is going to buy a full-service financial services package. I might like to have it, but whether everyone would agree on that, we don’t know. You can argue that the entertainment industry is focused on gaining access to all formats, for example, Viacom’s acquisition of Blockbuster and the distributors who want the content. But who cares? It might be nice for the people internally and there may be some leveraging of different assets or capabilities, but the customer may not really care. So, the company can do this in a very efficient way and provide more value to the customer. If not, there is a significant question of whether a company should diversify. Are there a lot of companies that can do that well? Not very many. One is GE, and you can probably count the rest on one hand. So, I think that there are a lot of companies that do make bets because they don’t know what the future will look like. They say, “Let me place five bets, and maybe one will be a hit.” But that is an expensive way to place bets. Hodge: I think the litmus test of each one is going to be the customer. Although I couldn’t tell you where, a number of those combinations, such as in telecommunications, entertainment, or information, are going to come apart fast. If the customers vote yes, that is fine. If they vote no, they are going to come apart fast. Fertile Fields M&A: Every fragmented industry under the sun is being consolidated and even some that don’t look fragmented are undergoing consolidation . In which industries is consolidation a viable economic move and in which ones is it really a stretch? Hodge: It is clearly viable in the chemicals industry. Chemicals is an industry that cheerfully ignored some of the tenets of basic competition that we all learned in the 60s and 70s. You don’t play in markets where you are number five or six, much less eight or nine, and the number nine player could be Exxon. These guys were taught not to walk away from assets until the last few years. Consolidation in that industry has been underway for a couple of years, and it is going to continue because it makes economic sense. M&A: That industry has an awful lot of smaller, private, specialized companies. Do you see a lot of them getting together or will they just fade out? Hodge: That is sort of at the other end of the spectrum from the basics and intermediates. I think you will continue to see a high level of activity. As these portfolios have come apart or demerged, the interest in creating a broad-based specialty chemicals portfolio has risen dramatically. The common element for these customers is the critical need for detailed customer understanding. You have 50 different markets and 20 different types of customers and those, too, will go through a cycle of problems. Prouty: Consolidation occurs when you are talking about a mature industry, and the natural strategy in a mature industry is to be a low-cost producer. Another strategy is to have the depth and breadth of service for your customers. With mature industries, you look at the natural strategies that you would follow, and that would lead you to consolidation, where “big is better.” On the other hand, it is a stretch to consolidate when the key industry benefits are not economies of scale. What your customer may be buying is service or quality more than price. That may mean that consolidation could actually be a detriment to how you would want to position yourself. In the chemicals industry, for example, you have two strategies: You had better be big or you had better be a niche player. There is no in-between. Berger: One of the real problems with consolidations is that absorption is murder. The targets are small and they have entrepreneurial cultures. All of a sudden, some big guy absorbs these dwarfs, brings them together, and then tries to make a giant. The indigestion is pretty bad in some of the build-ups. Strategically, it is the right thing to do, but consolidators are having all kinds of problems and exerting huge amounts of energy absorbing some of these companies. That is what I see in the chemicals industry. M&A: In chemicals, there are some very strong strategic and technological reasons for consolidation. But what about other industries where it just seems to be a case of bringing together mom-and-pop types of businesses that were never thought of much as having potential for gaining value from volume and mass? Holland: There is a pretty clear formula where consolidation will make sense. The industry should be mature, fragmented, and one in which very real cost synergies can be realized in putting companies together. Integrating companies is very labor-intensive and it can be all-consuming. Companies that are good at consolidation have a repeatable process. They are doing it frequently, rolling up companies, and getting real cash benefits from their consolidation programs. Where consolidation typically does not work is in a business where you already have relatively large companies and you are putting together two companies that have strong market shares. The economic benefits are less clear. In fact, in a lot of those cases we see some risk concerning customer retention and revenue retention. There are good examples in the commercial banking industry. Because of the difficulty of integration, and because there is actually customer backlash where the customers have a choice, you often see revenue meltdown. We recently worked for a manufacturing client that was thinking about acquiring a key competitor. Its number-one customer was against the deal – worried about supplier power – and threatened to shrink its business. Needless to say, that acquisition was not pursued. So, while people typically approach integration on the cost side, some deals do not work on the revenue side. A modern variant on the consolidation theme is one that is oriented toward increasing revenue per customer by offering a larger product portfolio. A company that has a strong franchise or distribution capability, such as a Microsoft or Cisco, acquires companies to fill out its set and offer a more integrated product line to its customers. These types of “consolidations” often have superior results to more cost-reduction-oriented consolidations. M&A: Is customer erosion a significant problem in other consolidating industries that were historically run by mom-and-pop businesses? Prouty: In a number of industries consolidation and restructuring are based on economies of scale. Some examples are hospitals, professional service firms, including consulting, high-tech companies that are consolidating as the industry matures, and educational organizations, where the drivers include the current cost of education. Some universities are consolidating capabilities and facilities. We are seeing consolidation in a host of different kinds of dealerships, such as car dealerships and office supply distributors. A lot of industries now undergoing consolidation have been those traditionally dominated by the “mom-and-pops.” The factors that we talked about earlier – the businesses becoming more mature, more price sensitivity, the opportunities for leverage by buying on the procurement side, etc. – are driving these consolidations. I have seen the domino effect of consolidations within an industry. I may be fine being one of 25 competitors, or if I am an audit firm, one of six. But when somebody starts consolidating, suddenly the gap widens. I may be okay competing against everybody the same size, but when there is a giant in the room, the rest of us have to start growing big as well. So, sometimes it kicks in because the first one out there is achieving those economies of scale, that market leverage, etc. It really is causing a domino effect because the other competitors now have to change the way they operate, whether they want to or not. Strauss: Some of those industries – the car dealership industry, for instance – are consolidating because they may not have a choice. That may be better for their economics but quite honestly that industry model is changing. You see one out of three people buying cars via the Internet and you know you are consolidating a dinosaur. You have to think about whether that means anything for your long-term survivability. Maybe you are better off trying to figure out what an industry will look like going forward than trying to consolidate a dinosaur. The Right Mix M&A: We see an almost endless number of restructurings and breakups for all kinds of reasons including the pleasing of investors by simplifying companies. How far do you have to go to convince investors that you are focused finely enough and how do you think investors be viewing those companies with the big-bet acquisitions that spread them out? McKelvey: What you have to do is to convince investors that you have the right mix. I think it very simply comes down to creating a credible strategic plan that is supported by strong qualitative analysis and that demonstrates that the present value of the cash flows of your business is greater than what you can sell the business for. When you can’t make that case, you have an excellent argument to sell. Frankly, with today’s markets and the high multiples at which many sectors are trading, it is getting harder and harder for companies to make that case in a credible way. Holland: The pattern over the last 10 years is that there are fewer and fewer companies based on the thesis that they are just good holding companies. There are some companies, like General Electric and Emerson Electric, that are good at that – good at the holding company concept, buying good businesses, and managing all aspects of corporate control. But for the most part, that theme is dwindling in favor with investors. You are seeing both acquisitions that are more strategic and core-business-focused as well as divestitures, in which you don’t have that holding company approach. M&A: Emerson’s rationale is that all of its businesses are electrical. Some information companies have been put together simply on the basis of providing information. Are we saying that kind of a rationale probably isn’t going to work anymore, that idea alone is not enough? Strauss: I think we are. The thing that distinguishes an Emerson and a GE from most of the companies out there is that their business processes are very well refined. They have the ability to manage not only in a given industry but across markets, across industries, across geographies. There are very few of those companies, and the stock market recognizes that. You don’t really have to go very far in terms of diversification to be successful. But the market is going to tell you whether it thinks you are diversifying or not. Prouty: From an analyst’s standpoint, the preference is for a pure play. I helped in the turnaround of a retailer that was owned by a publicly traded insurance company. Both businesses were disadvantaged because they were being treated in the same way. Eventually, the insurance company spun off the retail company through an IPO. Individually, the companies could command higher market values than they did as one entity. So, that is one reason for the whole stock market type of play. The other thing that is going on is this whole issue of core competency. We are seeing companies that are saying if a business is not their core competency, they either have to make it their core competency or get out of it. This is a factor driving companies to both making acquisitions in their mainstream businesses, so they are number one or two in a market, and divesting businesses that are not in their mainstream or that they can’t grow to market dominance. This drive to focus on core competencies also accounts for why we are seeing operating alternatives like outsourcing. People are saying, “This function is not what we are good at, let’s not waste management time on it. Instead, let’s focus on the market, on the customers, and on critical success factors, such as technology and new products. If anything is non-core, divest it if it is a business unit, or if it is a support function, let’s look at outsourcing it.” Hodge: Look at a company like Du Pont. It’s an excellent company. It has performed extremely well. But every time it goes before the analysts, it has to explain why it still has Conoco and why it just bought ICI’s polyester and titanium dioxide businesses. It is running a very strong portfolio, but it still is a portfolio, and that is very, very hard to sell.