Ravi Madhavan's A&D Blog

Welcome to my Acquisitions & Divestment blog!

Welcome to my Acquisitions & Divestment blog, which is primarily meant for the community of Katz students and ex-students (MBA, EMBA and Exec Education) who have taken my Acquisitions & Divestment course over the last few years. Given the amount of ongoing interest in M&A, I hope this will grow to be a communication platform for us to keep in touch and help each other keep abreast of new developments in the field. This blog will focus on the strategy and general management views of Acquisitions & Divestment (as opposed to the (technical) financial or legal aspects). I will post here links to M&A events, commentary and resources, as well as share observations about the changing landscape of M&A. Come back often and let me know how we can make this interesting and useful for everyone!

Azure Capital's exit strategy guide

With the IPO market sluggish, being acquired is the preferred option now for many startups and their VC investors. Here, from NYT Deal Book, is advice from Azure Capital's partners, who have successfully sold eight companies in the recent past.

Black & Decker/ Stanley Works

Breakingviews.com (by way of NYT) calls the recently announced merger of the two tools companies "something like the perfect deal." Apparently the deal was 28 years in the making, according to NYT Deal Book. 

Cisco - acquisition strategy and organization

This Breakingviews column via NYT Deal Book takes a critical view of what a decade of aggressive acquisition strategy may have done to Cisco. The key message: With 59 standing boards and councils, Cisco may have become unwieldy as an organization.  

Can Geely manage Volvo?

Notwithstanding some earlier doubts expressed about the deal, especially with regard to IP issues (see my earlier blog entry here), it appears as if Ford's Volvo division may be sold to Chinese automaker Geely after all - see one report here (NYT). This WSJ article takes up an interesting question: Does Geely have the management capability and international experience to make the Volvo acquisition work? The article suggests that Geely has a depth of management and technology skills that many observers in the West may be surprised by and, indeed, suggests that fact is one reason why Ford thinks the deal makes sense.

IBM - Dassault transaction

Last week, an interesting transaction was announced, in which IBM sold part of its Product Life Cycle Management (PLM) unit to Dassault Systeme for $600M, placing the unit into a Joint Venture structure. Dassault, a leader in design systems for aircraft and automobiles, appears to gain significant value from the deal: it allows them to expand forcefully into the broader market for industrial products in general. For IBM, the move appears to be part of the pruning it has been doing of its business portfolio in response to the tech slowdown. See a report on the deal from Bloomberg News here. 

Deal bonuses at Pfizer

Two Pfizer senior VPs who worked on the Wyeth acquisition will receive bonuses totaling $2.2m for closing the deal, reports NYT Deal Book. Excerpt:

Pfizer just announced it is giving two senior vice presidents bonuses of $1 million and $1.2 million for their deft handling of the $68 billion Wyethbuyout in the midst of the global financial crisis.

“These executives, in addition to carrying out their normal, ongoing responsibilities, devoted extraordinary efforts and made extraordinary contributions in addressing critical components of the transaction,” Pfizer said in a filing with the Securities and Exchange Commission on Wednesday.

Specifically, they “obtained permanent debt financing during an unprecedented global financial crisis” and made other decisions to smooth the way to the merger, consummated with federal approval on Oct. 15.

Bruce Wasserstein's heirs - WSJ

This WSJ article speculates on who might be Bruce Wasserstein's "spiritual heirs" as the next king of dealmakers. Although naming four names, the article concludes that today's deal climate is not consistent with the "great man" approach. Excerpt:

[T]he sports-car flash of Mr. Wasserstein's "great man" style of banking era had long dulled. Investment banking today is more about building a better minivan -- reliable, practical and adaptable. No banker is bigger than his client. And no banker is indispensable.

It's no accident that the reigning investment banking firm, Goldman Sachs Group, stresses the firm over the individual. "The model today is the faceless brand," said one former Wasserstein confidante. The next generation Bruce Wasserstein wants to run a hedge fund, not be a banker.

Mr. Wasserstein "was a brilliant guy," says Steven Koch, co-chairman of Credit Suisse's mergers department. "The needs of clients are more complex, and deals require someone who can work with a CEO as well as a larger organization."

Comcast's ambitions

Yesterday's NYT had a very nice article on the proposed Comcast/ NBC Universal deal (see previous entry about the complications posed by Vivendi here). The analysis suggests that, in the media business, distribution has been king, rather than content; thus, it's not clear what Comcast hopes to achieve with its intended foray into content. It cites the blockbuster failure of AoL Time Warner as a cautionary example. On the positive side, though, are that NBCU has several profitable units and may be priced right at the moment, as well as that NBCU's hulu.com stake may have significant upside potential. It will be interesting to watch what happens here.

Post-meltdown deals

NYT's Deal Book has a short article summarizing an analysis of the top 50 mergers done since Summer 2007 to assess how they are different from those done in the heady months before then. Three key differences: very little private equity activity (reflecting the drying up of credit), no mergers of equals (suggesting a separation between the strong and the week), and no hostile deals (suggesting that bidders wanted valuation based on in-depth due diligence). 

IP concerns threaten to derail Ford's sale of Volvo to Geely

This Bloomberg story is a good illustration of how intellectual property (IP) issues factor into divestment decisions. In this case, Ford's proposed sale of Volvo to Chinese automaker Geely is reportedly hingeing on IP safeguards. Excerpt:

Geely and Ford officials are meeting in London this week to try to resolve the U.S. automaker’s concerns about sharing technology and future product plans, said the people, who asked not to be identified because the negotiations are private. Without an accord, Ford may opt to keep the Swedish unit, where losses are narrowing and sales are improving, the people said.

Concerns about intellectual property rights have hindered Chinese automakers’ attempts to make acquisitions, slowing overseas expansion plans. In July, General Motors Co. rejected an offer for Opel from Beijing Automotive Industry Holding Co. after failing to agree on safeguards for designs and technology, Xu Heyi, the Chinese company’s chairman, said on July 24.

“Volvo is completely integrated into Ford’s product development strategy, and Ford should be concerned about where its vehicle architectures will end up,” said Michael Robinet, a CSM Worldwide analyst in Northville, Michigan “This is akin to selling a room on your house. You can’t separate it easily.”