Quote:
Originally Posted by wdfifteen
And then there are corporate raiders who have no intention of making an acquisition work for anyone but the investors.
|
I did diagnostic and biotech M&A for 25 years. This statement always cracks me up ^^^.
Who are "investors"? They are people who want to put money to work in order to make a positive return. If a "corporate raider" (I assume you're talking about investment bankers or private equity) puts together an acquisition that does not work, then nobody makes money. Money or stock was used to fund the acquisition. If the clients bail, the employees bail, goodwill deteriorates, or the service deteriorates, then the acquired businesses does not maintain the margins needed to pay back the investors. Any investment banker (Oh yeah..."corporate raider") who puts bad deals together just to collect his fees would be out of business in a hurry. Besides, they all have money on the back-end in earn-outs, restricted equity, subordinate shares, etc. Everybody involved in an M&A deal wants the deal to be successful. As the OP states, sometimes clashes in corporate culture or arrogance of the acquirer can result in bad deals, but its never the intention.
90% of acquisition valuations are based on a multiple of EBITDA (or EPS if the company is public). If a company has zero or negative EBITDA, then the only value is to a strategic buyer who can acquire the business on a accretive basis and eliminate redundant or duplicitous expenses (usually people). "Dilutive" deals rarely happen, unless the strategic buyer has some product offering or service that is guaranteed to grow the sales of the acquired client list.
Sometimes the deals, once integrated, are only in incremental impact on the acquire's P&L, and the acquirer can loose 40%-50% of the business and the deals still drop profit to the bottom line. These deals get the bad rap, as most the jobs are and infrastructure are eliminated Examples of these are when a $10BB LabCorp (LH Holding - NYSE) buys a $25MM local diagnostic laboratory and in one day after closing the deal, the entire acquired facility is shuttered. The increase in volume at LabCorp isn't even a blip on the screen. LabCorp doesn't care if 30% of the clients quit.
I guess wdfifteen could have a point in the deals where a company is failing, and the assets, real estate, intellectual property, or individual operating units, are worth more individually that the company is as a whole. In most of these cases, the business is struggling so badly that it's not likely to survive anyway.