I've posted before about MACs (material adverse change clauses; also called MAE - material adverse effect - clauses), particularly around the use of a MAC by Johnson & Johnson in trying to negotiate a lower price for Guidant. As we saw there, exercising a MAC is not only the M&A equivalent of nuclear war, it also can lead to unforeseen effects like an ultimately HIGHER price for the target company.
For those interested in learning more about the arcana behind the legal dimensions of MACs and why they are so hard to exercise, the M&A Law Prof Blog has an excellent post on that very subject.
Thursday, August 09, 2007
Wednesday, August 08, 2007
Sourcing Deals
In general, I think it easier to find deals as a strategic acquiror than it is when looking for investment opportunities in the VC or PE worlds. First, the universe of potential targets is a lot smaller, unless you work for General Electric. Secondly, although your financial models may not adequately account for this factor, there is, at some level of the corporate decision-making process, a built-in "strategic bias" favoring deals that help grow the business.
Assuming you're not operating within a global conglomerate or looking to expand inorganically into a new line of business, potential targets are going to be found primarily amongst your competitors and suppliers. For example, in the wireless industry we would do deals to acquire operating markets or raw spectrum from other carriers (competitors), acquire or sell towers to or from aggregators (suppliers), and acquire companies providing billing and other IT services (suppliers). In addition, there would be the occasional deal with a financial entity (speculators) to acquire spectrum assets, or a small company with something new and exciting to offer that wasn't currently a vendor (innovators).
In at least the first two groups, you should know who the potential targets are, at least for the most part. You probably already talk regularly with some of them. Others you may cold-call to get a discussion started, or they may hire bankers to approach you. Or your CEO might come back from a two-week camping trip with a deal in hand. In any event, deals with those categories of targets are not hard to get going.
Of the other two groups, the speculators are the easiest to locate - they will usually find you. The innovators are the tough ones to find. While this category may be of lesser importance in stable, slower-growing businesses, it's critical in many technology businesses to find and acquire these talents and ideas before the competition does. The problem of finding them could stem from not knowing where they might be, not knowing how to get your inquiries returned, or not being able to efficiently filter out the few good opportunities from the flood of dreck that is being thrown on your desk every day (an issue Google no doubt struggles with). More than ever, overcoming these issues requires those doing the deals to know as much as humanly possible about their company and the environment it operates in.
Assuming you're not operating within a global conglomerate or looking to expand inorganically into a new line of business, potential targets are going to be found primarily amongst your competitors and suppliers. For example, in the wireless industry we would do deals to acquire operating markets or raw spectrum from other carriers (competitors), acquire or sell towers to or from aggregators (suppliers), and acquire companies providing billing and other IT services (suppliers). In addition, there would be the occasional deal with a financial entity (speculators) to acquire spectrum assets, or a small company with something new and exciting to offer that wasn't currently a vendor (innovators).
In at least the first two groups, you should know who the potential targets are, at least for the most part. You probably already talk regularly with some of them. Others you may cold-call to get a discussion started, or they may hire bankers to approach you. Or your CEO might come back from a two-week camping trip with a deal in hand. In any event, deals with those categories of targets are not hard to get going.
Of the other two groups, the speculators are the easiest to locate - they will usually find you. The innovators are the tough ones to find. While this category may be of lesser importance in stable, slower-growing businesses, it's critical in many technology businesses to find and acquire these talents and ideas before the competition does. The problem of finding them could stem from not knowing where they might be, not knowing how to get your inquiries returned, or not being able to efficiently filter out the few good opportunities from the flood of dreck that is being thrown on your desk every day (an issue Google no doubt struggles with). More than ever, overcoming these issues requires those doing the deals to know as much as humanly possible about their company and the environment it operates in.
Monday, August 06, 2007
Free Drugs
Publix supermarkets announced today that the company will begin giving away seven popular prescription antibiotics. The articles on this development note that WalMart has been selling a number of popular generic medications for $4, and that several other pharmacies have moved in the direction of low cost/free prescriptions.
Amidst the laudatory statements of improving access to important medications, one notes that these seven medications represent nearly 50% of the generic prescriptions filled by Publix. Have you ever tried to comfort a crying child while waiting 15-20 minutes for a simple prescription to be filled? The reason it takes so long is the mind-numbing level of paperwork and authorizations a pharmacy must go through to get insurance authorization.
By making the medication free, Publix eliminates the need to deal with insurance issues on a massive volume of its pharmacy business. I don't know how much employee time this frees up for Publix, but I'm sure it greatly exceeds whatever the company pays for these generic medications. Fortunately, this is one of those rare cases where cost containment will actually lead to a better customer experience.
Amidst the laudatory statements of improving access to important medications, one notes that these seven medications represent nearly 50% of the generic prescriptions filled by Publix. Have you ever tried to comfort a crying child while waiting 15-20 minutes for a simple prescription to be filled? The reason it takes so long is the mind-numbing level of paperwork and authorizations a pharmacy must go through to get insurance authorization.
By making the medication free, Publix eliminates the need to deal with insurance issues on a massive volume of its pharmacy business. I don't know how much employee time this frees up for Publix, but I'm sure it greatly exceeds whatever the company pays for these generic medications. Fortunately, this is one of those rare cases where cost containment will actually lead to a better customer experience.
Friday, August 03, 2007
News Corp - Dow Jones Side Deals
Interesting but shoddy piece in yesterday's NYT about the "side deals" in the News Corp - Dow Jones deal whereby News Corp agreed to pay the sellers' banking and legal fees (totalling some $40M). Quoting several disgruntled Dow Jones investors and putative bidders, the article questions whether this side deal - and past banking and legal relationships between the parties - caused the advisors to give Dow Jones less-than-objective advice in pushing for a deal.
For starters, the entire thesis of this article is specious: Bankers, and firms like Wachtell that usually only bill for M&A work when a deal closes, ALWAYS have an incentive to see the deal get completed. ALWAYS. A seller asking for an 11th-hour concession (and one that here, at .7% of deal value, represented no more than a mere lagniappe in the context of the transaction) makes no difference in this dynamic. The sellers got a better deal by $40M - bully for them, and good for the advisors in obtaining it. They also got a 67% premium in the face of buyer perception that Bancroft family issues would make for a very difficult transaction.
That said, these folks are professionals who know far too well they value of their reputations and the need to be perceived as providing objective advice on whether to proceed with a deal. Given just how good this deal was for DJ investors, there's little need for them to defend their conduct. I would also observe that Wachtell, in representing DJ and all of the craziness involved in this deal with the Bancoft family, is not likely being overpaid in collecting $10M.
For starters, the entire thesis of this article is specious: Bankers, and firms like Wachtell that usually only bill for M&A work when a deal closes, ALWAYS have an incentive to see the deal get completed. ALWAYS. A seller asking for an 11th-hour concession (and one that here, at .7% of deal value, represented no more than a mere lagniappe in the context of the transaction) makes no difference in this dynamic. The sellers got a better deal by $40M - bully for them, and good for the advisors in obtaining it. They also got a 67% premium in the face of buyer perception that Bancroft family issues would make for a very difficult transaction.
That said, these folks are professionals who know far too well they value of their reputations and the need to be perceived as providing objective advice on whether to proceed with a deal. Given just how good this deal was for DJ investors, there's little need for them to defend their conduct. I would also observe that Wachtell, in representing DJ and all of the craziness involved in this deal with the Bancoft family, is not likely being overpaid in collecting $10M.
Wednesday, August 01, 2007
Results-Only Work Environment
I posted a bit about "Results-Only Work Environment" (or "ROWE") last year, in light of Best Buy's rolling out this concept at its HQ. At first blush, the name strikes me as faintly ludicrous - after all, aren't results the only thing that matters in the workplace?
It's a sad statement about how far from this headset so many corporate workplaces are that the creators of ROWE had to choose such an obvious name, but one hopes it serves as a daily reminder of what's important - and what's not - in the office. The concept of ROWE is a simple one; to quote CultureRx, the creators of ROWE:
"In a ROWE, people do whatever they want whenever they want as long as the work gets done. In the park, in a coffee shop, in the shower. At midnight or 3am or on Sunday. Whenever and wherever."
I'd take this as a manifesto of sorts - obviously not every job lends itself to a "whenever/wherever" working style, and sometimes acheiving results requires that the "whenever/wherever" be "in the office, this morning." The important distinction is that all questions of time, place and process are viewed through the lens of maximizing results, not face time or some antiquated notion of needing to clock a set number of hours each day in the office.
Of course, critical to making this work is that managers trust employees and employees take true ownership of getting results rather than filling a chair. It also means understanding that a) there are times you do all need to be together in the office to get the work done; and b) "reachability" and responsiveness become absolutely critical. Finally, it also means recognizing that some people get their best results by working in a corporate office for set hours.
The CultureRX site also has an amusing section on "sludge" - negative (and usually passive-aggressive) workplace language used to cast judgment on those who may not be filling their chairs as ardently as the sludge-slingers. Anyone who has spent quality time in a corporation has no doubt seen more than their share of this! I would add to this concept "sludge avoidance" - the subspecies of corporate type who constantly has to tell you how hard they are working, the sacrifices they are making to spend time in the office, etc.
It's a sad statement about how far from this headset so many corporate workplaces are that the creators of ROWE had to choose such an obvious name, but one hopes it serves as a daily reminder of what's important - and what's not - in the office. The concept of ROWE is a simple one; to quote CultureRx, the creators of ROWE:
"In a ROWE, people do whatever they want whenever they want as long as the work gets done. In the park, in a coffee shop, in the shower. At midnight or 3am or on Sunday. Whenever and wherever."
I'd take this as a manifesto of sorts - obviously not every job lends itself to a "whenever/wherever" working style, and sometimes acheiving results requires that the "whenever/wherever" be "in the office, this morning." The important distinction is that all questions of time, place and process are viewed through the lens of maximizing results, not face time or some antiquated notion of needing to clock a set number of hours each day in the office.
Of course, critical to making this work is that managers trust employees and employees take true ownership of getting results rather than filling a chair. It also means understanding that a) there are times you do all need to be together in the office to get the work done; and b) "reachability" and responsiveness become absolutely critical. Finally, it also means recognizing that some people get their best results by working in a corporate office for set hours.
The CultureRX site also has an amusing section on "sludge" - negative (and usually passive-aggressive) workplace language used to cast judgment on those who may not be filling their chairs as ardently as the sludge-slingers. Anyone who has spent quality time in a corporation has no doubt seen more than their share of this! I would add to this concept "sludge avoidance" - the subspecies of corporate type who constantly has to tell you how hard they are working, the sacrifices they are making to spend time in the office, etc.
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