Everyone in the business community knows merger-and-acquisition activity has softened in recent years. What might be surprising though, is how dramatic the drop-off has been.
In 1998, the Anderson Roethle advisory firm reported 240 completed transactions for the nine months ended Sept. 30. For the same period this year, 53 deals were closed, representing a 78% decline when compared with 1998.
The 53 transactions closed in 2002 represent a 67% decline in the number of deals closed when compared with the year 2000.
Firms in the transaction business, such as providers of merger-and-acquisition advisory services, deal attorneys and accountants, agonize over the lower number of transactions this year.
There is only anecdotal evidence why business owners are not selling. Most management teams, however, tell Anderson Roethle representatives that sales volumes and profits are substantially lower, and continuing to trend downward.
The huge decline in the number of completed transactions, Anderson Roethle believes, is attributable to unfavorable economic terms prospective sellers know they will experience when earnings are down, combined with lower multiples of earnings being paid.
An important derivative of merger-and-acquisition activities is the location of corporate headquarters of the buyer. Many times, it has been noted that Company A, which has acquired Company B, when announcing the deal, stated there were no plans to make material changes in operations.
Frequently, significant changes soon follow. Among those are "rightsizing," "downsizing" or "rationalizing operations," – all euphemisms for cost-cutting.
The drivers for such cost-cutting measures are typically moves to reduce redundancies in functional areas, increase profitability, or improve the buyer’s return on investment.
One of the significant redundancies is the existence of two corporate staffs or corporate headquarters.
For transactions involving Wisconsin companies, the data spans the nine-month periods ended Sept. 30, 2000, through 2002. The information is stated in percentages rather than absolute numbers of transactions to better show trends.
As the data shows, buyers whose corporate headquarters are out of state have declined about eight percentage points for the periods shown. Wisconsin-based companies are, however, still buying other Wisconsin companies or out-of-state companies 70% to 80% of the time.
It may be too soon to measure the impact on Wisconsin of corporate headquarters lost or gained. Many of those Wisconsin has lost still have substantial operations in the state.
Among those Wisconsin lost are: Lands’ End to Illinois-based Sears, Firstar Corp. to Minnesota-based U.S. Bancorp, Provantage Health Services to New Jersey-based Medco (a subsidiary of Merck & Company), and Consolidated Papers to Finland-based Stora Enso.
A few of the substantial acquisitions completed by Wisconsin-based companies are: Associated Bank’s acquisition of Minnesota-based Signal Financial, Marshall & Ilsley’s acquisition of Minnesota-based National City Bancorporation and Johnson Controls’ acquisition of Japan-based Ikeda Bussan Company.
Stanley Johnson is president of Anderson/Roethle, Inc., a Milwaukee-based firm that has specialized in providing merger, acquisition, divestiture and valuation advisory services to corporate clients for 40 years.
Nov. 8, 2002 Small Business Times, Milwaukee
