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Marty's Blog

• Creating Shareholder Value in Today’s Market

  How do you create shareholder value in a market defined by $130/barrel, rising unemployment, and inflationary concerns? By acquiring a large competitor and ruthlessly focusing on servicing customers. The Dow was down 1.68% today and the NASDAQ was off 2.25%, yet Staples (SPLS) was up a whopping 5.30%. They achieved this by thoughtfully, and systematically increasing its then hostile tender offer for Dutch giant Corporate Express (CXP) from an initial 7.25 euros on Feb 19th to 8, then 9.15 to the final, and now-friendly price of 9.25 euros. To recapitulate, CXP shareholders are up 176% from the prior 12mo low, and the shareholders of SPLS reward the acquisition announcement by buying more shares on the news and driving up the price. Well done. marty Posted Jun 11 2008, 10:55 PM with no comments

• Announcement – Second Closed Transaction

  I am happy to announce the successful closure of our second Forum transaction in 30 days.  A small systems integrator in Atlanta was acquired by a private company from neighboring Tennessee.  What’s amazing is they did not know each other before, the acquirer was aggressively looking to expand in the area, and that it happened relatively quickly. Yeah!  marty Posted Jun 05 2008, 04:38 PM with no comments

• What does HP acquiring EDS mean?

  The announcement that HP was acquiring EDS rightly sent shockwaves around the world. What’s it mean? Well, it means a number of things in no particular order: 1) Look out IBM, the new sheriff in town, Mark Hurd, who has rolled 7’s for a few years now, is looking like a winner again, and the gains in efficiencies will come out of IBM’s hide; 2) bad, bad news for Dell. This is a well-run products company buying a poorly run services company with low moral. They can turn it around where the old regime that failed, couldn’t. With this arm of enterprise customer delivery functioning well, look out Dell; 3) this is really bad news for Sun – really, really bad; 4) it also means size in service is more meaningful than before. Whereas HP bought a small, but very well respected IT services company (Knightsbridge) awhile back, with a hundred or so million in revenue, now that looks like an appetizer. So long midsize IT services deals for larger enterprise players; and 5) the big 4 Indian IT and outsourcing companies will now have to really step up their acquisition strategies to counter the customer aggregation capabilities of the new combined entity. Watch for more with an emphasis on cross-border. marty Posted May 14 2008, 09:43 PM with no comments

• Announcement - First Closed Transaction

  It is with great pleasure we announce the first closed transaction from the Forum. See the announcement. The buyer is a $700m rev publicly traded IT solution provider, and they found their match, a small, vertically focused CISCO solution provider, here, on the Forum.  Clearly, the Forum is the IT mergers and acquisitions marketplace. Congratulations to all those who participated, and look for more announcements shortly. Marty   Posted May 12 2008, 11:50 PM with no comments

• Per the WSJ

  Per the WSJ, January announced deals are off 37% from the prior January , 50% from December and the lowest level since October, 2004.  Further, if January’s numbers are annualized, we are off nearly 60% versus 2007, a major correction, not a speed bump. International buyers have pulled way back and off their highs, and private equity buyers are off to their slowest start in five years. There is good news, however, in the January numbers....it’s February. More to come. marty Posted Feb 15 2008, 07:57 PM with 1 comment(s)

• Indian IT Companies

  Just back from Mumbai and I have two things to say, those advertised fold flat seats aren’t exactly flat when you are nearly 6'5", and secondly, those who haven’t been to India need to go at least once. Then they will understand what the Wild West looked like in the mid to late 1800's. Wild, woolly, and tremendous opportunity. Let me add a third thing, the reason the Indian IT companies trade at such multiples is because... they deserve to. When you can take a sub-10% EBITDA business, through labor arbitrage and sales expansion, by enabling the top of the funnel to be larger due to leveraging an existing, trained, and low cost bench, and make it 20%, huge value is created. I met with a local company whose top line is growing 50% and his margins are increasing. This is as uncommon today as Hillary Clinton not crying at a campaign stop today. Top line growth and margin expansion is the mother’s milk of financial alchemy. More to follow. marty Posted Feb 07 2008, 07:08 PM with no comments

• Three Things

  First, please keep those notes coming; I enjoy hearing from people who read this blog and claim to get some benefit. Second, in case you missed it, the capital markets are in a complete and total tizzy, and while your guess is as good as mine, I think it portends bad things. Having said that, the M&A business continues to have pockets of strength and the common element when successful, whether advising the buyer or the seller, is having market-based valuation expectations.  We have had discussions with 2 forum prospects, both want to hire us for additional services. Both in the ERP space, same primary vendor, both near $10m in revenue, one wanting around $8m which is achievable, the other near $15m, which I suspect is drug induced. Guess which one we are going to try and go market?  Third, we are advising a sub-$5m infrastructure services company who has received indications of interest from online forum buyers.  We expect to announce our first closing, shortly. Hmm, I think we may be onto something. Happy selling. marty Posted Jan 17 2008, 08:49 PM with no comments

• EDS acquires Saber Corp.

  Last week, arguably the best and most rewarding transaction we have ever been involved in, closed. Our client, Saber Corp., sold approx 93% of the company to EDS for $420m, making the deal worth over $450m.  What makes this transaction so gratifying is that by not selling initially 100% of the company, like most service deals, it was “mostly” clear to us when we started our process over two years ago, that the value maximizing approach was non-conventional, and we needed a two-step process. We also needed and required a lot of confidence along the way, as it was quiet on a few occasions.  Rather than take the cash up front, we found a private equity group who really delivered on their promises, and helped grow the business by finding, then financing, an acquisition nearly three times the size of themselves. Certainly, Saber management had proven themselves, but to add on a company that much larger required a lot of foresight by the private equity group.  Based upon the ensuing growth as reported, their confidence was justified. And again, while we were not directly involved in the deal with EDS, Saber management, again, sold not all of the company, retaining a sliver of equity, about $50m; and if history is any guide, will leverage that up again. Good for them. They have demonstrated by taking a longer view, continuing to work hard and smartly, you can have your cake and eat it too. BTW, I failed to mention, the founders of Saber are as classy as they come, and were a joy to work with. marty Posted Dec 10 2007, 11:56 PM with no comments

• Latest Offerings

  For those who have been following our product development, a few weeks ago we did not have a robust services offering. Based upon client feedback, we now have a range of services to assist sellers in the M&A process accomplish their objectives. In the case of our most comprehensive service offering, we now have two very interesting engaged clients.  Both are IP and service plays, both have secret sauces, worldwide applications, one is Asian-based, the other U.S.  In terms of size, both are valued in the $8 figure plus range, and both companies are more valuable to prospective buyers than they are to themselves.  Patents with meaningful cost savings, plus barriers to entry, are good things when looking for liquidity.  Because both entities offer value across a wide spectrum of users, the search process will be complex and time consuming. A lot of frogs will be kissed to find qualified bidders consistent with our timing. We will keep you updated as to our progress and hope to be broadcasting tombstones in the near term. marty Posted Nov 14 2007, 11:25 AM with no comments

• Lack of Targets

  According to a recent Frost and Sullivan M&A report, they cite the key barriers to a successful M&A strategy. They clearly quantify the primary reasons why more deals don't get done.  In other words, what's stopping them?  As expected, the biggest reason why transactions don't get done is price. Over a third of all deals according to their report can't reach agreement on valuation. That is not really surprising. What was surprising, to me at least, were one out of six deals per the report do not get done because the acquiring company can't find a suitable target. That means they are all dressed up and ready to go, but can't find a mate. This I found fascinating. There are no lack of targets. There is simply an inefficient system to put them together in a timely and cost effective manner. Hence, the M&A Forum. When we open up searching, shortly, we will have over 50 companies listed for sale from principals and intermediaries, from multiple countries, varying in size from $1M in revenue to nearly $40M, and in value from little, to nearly $75M.  BTW, did we say yet our list of buyers, including strategic acquirers, private equity/venture capitalists, and international companies now measures in the hundreds?  We will be making a more formal announcement as we exceed a certain retail figure. Happy selling. marty Posted Oct 31 2007, 05:26 PM with no comments

• A Fond Farewell

  Any day now, it's reasonable to expect Stan Laybourne, CFO, of Insight to retire, and ride off into the sunset. It was announced a few months ago, he would be leaving in the third quarter, and he's still there. I have personally worked with Stan on a number of strategic activities, and have found him to be a cut above, and will miss the opportunity to go into battle again. With Stan first assisting CEO Tim Crown, and now CEO Rich Fennessey, he has supported a total, and successful, transformation of the company. As it has morphed from a phone reseller, or dmr, with a few non-core functions, the company is now well positioned behind CDW as the preeminent national solution provider with hardware, software, and services wrapped around meaningful cost efficiencies due to the scale in their business. Stan was in the room each time a key decision was made, and at the end of the day, had much responsibility to translate vision into reportable buckets of revenue and profitability. I like to think he was where the rubber did not meet the sky. Happy trails Stan. I wish you a happy and healthy retirement and a big loss against Michigan when the Buckeyes show their ugly faces November 17th in Ann Arbor. Go Blue! marty Posted Oct 29 2007, 12:30 PM with no comments

• Buying Stock in the Buyer

  Let me outline what I consider a real dilemma. Consider selling an IT BPO company in the US, and the two most logical suspects are international companies. One is Indian, the other is Chinese. Both value the company at $20m US, expect to be public in the next 12mo, both expect the seller to continue on with an earn out over the next 12-24mo and both want the seller to take up to 25% of the total consideration in stock. Let's see, you give up control, you get 33-50%of the total value in cash, which is good, and then need to deliver numbers to get your balance of cash, and end up with a minority position in a private company in a another continent. Sounds like a story you read about, but in many cases, with the buyers being non-US, this is the world sellers are in, and you know what, this creates really good opportunities to get liquid, and, creates meaningful upside. Do you know what is relevant in the above example?  It is not so much what our client may be worth, but what is the real value of the buyers shares. In this case, since you theoretically know what your business can deliver, history, pipeline, management authority, the variable is the buyer. Therefore, we are buying stock in the buyer. In this context, things are clearer and you can see your leverage points. With an earn out of approx 1/3 cash, 1/3 earn out, and 1/3 stock, the decision to select which shares to buy is the difference in this example of getting $18m or $29m, when all the variables were the same. Except in one case, the shares were worth 66% of par in 24mo, and the other 300% of par in the same period. marty Posted Oct 26 2007, 08:23 PM with no comments

• Staples + Dell = Winning Combination

  The announcement today that Staples will soon start selling Dell personal computers in their 1,400 store chain is much more meaningful to SMB solution providers than the previous announcement with Wal-Mart. This is the second meaningful announcement, in addition to the ASAP acquisition, in 90 days. Let's be clear here, subject to logistics and cultural integration issues, the Staples arrangement will be a big winner. Staples is an excellently run company, the leader in its segment, and the addition of Dell will ratchet up the competition. Say what you want about Dell and channel programs, this is a great channel, and it's a winning one. Now let's see how they coexist around managed services to these non-enterprise customers. marty Posted Oct 23 2007, 12:57 PM with no comments

• Matching up companies

  I was talking to a VAR 500 owner on Friday who focuses on the enterprise space. He is trying to lessen his emphasis on hardware and has been looking to buy a small services company for some time. If you can believe it, and you will have to now because we haven't enabled our search function yet, but we have a $5M services company in the same SMSA. The thing that makes the potential combination that much more compelling, is the services company has concentration in many accounts an enterprise VAR would find optimum. Not a lot of SMB, but the type of accounts that want and need product partners. marty Posted Oct 15 2007, 02:15 PM with no comments

• An Exciting Time

  As we prepare to announce our launch, and introduce our strategic partners, we are within weeks of enabling searches of listed companies for sale and turning on buyer's profiles. For those at the M&A Forum, this is a very exciting time.  To see a Fortune 500 company business development guy go online and enter their profile/mandate or "just-what-exactly-they-are-looking-for" is pretty cool. It is also cool to get a listing of 8 companies, revenues ranging from $5m to $30m that are for sale from an international boutique bank in some of the hottest service and outsourcing segments in our universe. This is also cool.  We expect to have nearly 300 companies listed for sale by the end of the 4th quarter, so stay tuned. p.s.  The KKR/First Data Corp deal did get finished. A big bullet avoided. marty Posted Sep 28 2007, 09:51 PM with no comments