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Synergies between the Old and the New. Acquisition of technology companies is an attractive strategy for traditional “bricks and mortar” companies seeking immediate access to technology. In addition, the equity markets may reward “old economy” companies that appear to be successfully transitioning into “new economy” companies. On the other hand, cash-rich technology companies seeking revenues, earnings and tangible asset values, may find a merger or acquisition of an “old economy” company an attractive alternative—especially if equity markets and funding sources return to investment fundamentals.
Strategic alliances proliferate in the new economy. The so-called “new economy” encourages strategic alliances and partnerships. In addition to stimulating “buzz” within the equity markets, these alliances provide
the players with much needed resources: capital, technology, content and market access.
Today’s private equity firms will be tomorrow’s sellers. Private equity groups have been active acquirers and investors. The holding periods for these investors is three to five years. That being the case, as their holdings season and increase in value, the private equity groups may be looking to the M&A market to cash in on their holdings over the next few years.
CFO expectations continue to run high. In a survey of a cross-section of CFO’s from more than 4,000 domestic firms conducted by FEI and Duke University’s Fuqua School of Business, one-third of the firms surveyed indicated that they expect to be involved in M&A during the current year. This is an increase over the 25% of the firms that experienced M&A activity during the prior year. In addition, the FEI/Duke survey indicated that M&A activity will be “especially prevalent among manufacturing firms, where 41% of the firms expect to experience M&A activity during 2000.”An interesting sidebar to the above is that the American public is becoming increasingly more open to corporate M&A. Reuters recently reported that Roper Starch Worldwide, the consumer trend tracker, found that 57% of the public now believes that mergers result in “more financially sound companies.” This is
an increase of 8% over a similar 1995 study and constitutes a definite change from the negative perceptions of the “Greed is Good” LBO’s of the 1980’s. However, the same survey did indicate continuing reservations with respect to job loss, price increases, and customer service.
Finally, a word of caution: Prolonged economic growth produces its own giddiness and can be forgiving of our errors in judgment. Corporate acquirers would do well to adapt to the “new economy,” while remaining mindful of the fundamentals. Ride the wave of innovation and “momentum investing,” but someday, probably very soon, revenues, earnings, and underlying asset values will be the eventual buoy of corporate value—whether public or private. As the old adage goes: “Results are the coin of the realm. Back to Main