Tag: acquisitions

“The amount of money … is astonishing”

Major Mergers and Acquisitions
Major mergers and acquisitions in the last week

During the last recession, there were a couple of things that were going on that I never expected to see, and these things seemed to lift the economy out of the doldrums at that time. One of them was the ability for homeowners to refinance their mortgages at low interest rates. And I’ve written about privately-financed efforts to do just that in a previous post.

Just today the WSJ ran an article on a flurry of mergers and acquisitions that’s taking place. Evidently, corporations have been sitting on huge piles of cash, and now they’re wanting to do things with it that will generate some kind of return.

On a day of bleak jobless news and a 144-point drop in the Dow Jones Industrial Average, Intel Corp. surprised investors by unveiling plans for a $7.7 billion all-cash takeover of Internet security company McAfee Inc. That came just hours before First Niagara Financial Group Inc. in Buffalo announced the biggest bank merger since the peak of the 2008 financial crisis, a $1.5 billion acquisition of NewAlliance Bancshares Inc.

Both deals pale in size next to BHP Billiton’s hostile $39 billion offer for Potash Corp. of Saskatchewan, disclosed Tuesday.

U.S. deal activity had been weak through most of 2010, as corporations husbanded cash and waited for more signs of economic revival. Many of the biggest deals have come in Asia, historically a laggard in the merger game.

This week’s moves suggest some executives have grown restless waiting for the broader economy to turn. Nearly $85 billion of transactions have been announced since Monday, the highest weekly sum since the week of Dec. 13, 2009, when Exxon Mobil Corp. announced its $40 billion acquisition of XTO Energy Inc., according to Dealogic data.

One factor may be the cash burning in their pockets. U.S. public companies carried $2.03 trillion in cash and short-term investments at the end of the first quarter, according to data from FactSet Research. That’s about 57% above the level at the same tome in 2006.

The article closed noting that the environment for ongoing M&A  activity looks good moving into the future, as well. “You’ve got the whole tectonic plate-shifts with China and India…and the amount of money that exists on balance sheets is astonishing.”

Knowing the Future

“The opportunity is to move from sense-and-respond decision-making to a predict-and-act model.” — Ambuj Goyal, General Manager of I.B.M.’s information management business.

http://www.nytimes.com/2009/07/29/technology/companies/29ibm.html

There’s a lot to be said for not proceeding too quickly in an economy like this one. There’s also a lot to be said for knowing the future.

That’s the gist of the message to learn from IBM’s acquisition of SPSS, whose website features “customer intimacy” and “knowing what your customers will do, before they do it.”

In the old days, there was “test marketing.” In fact, today’s Wall Street Journal shows evidence that the “old days” are still with us. Today’s WSJ features a story about Procter and Gamble and a test market of a product they’re calling “Tide Basic” (a scaled-down version of their industry-leading Tide brand of laundry soap.)

P&G of course wants to know the future. They want to know how this product will be received, and so they have manufactured a little bit of it, which is “currently for sale in about 100 stores throughout the South.”

This is the “sense-and-respond” model of business marketing — P&G will measure actual sales of the new product and decide whether to roll it out, based on those sales.

With its acquisition of SPSS, IBM has just bet $1.2 billion that that model of decision-making is going to be too slow for future marketers. In fact, the NY Times article linked above suggests that most of the major software companies are continuing to invest heavily — to the tune of more than $15 billion — in the notion that more companies will rely on the “predict-and-act” scenario in the future:

Major technology companies have made a flurry of such purchases in recent years, grabbing suppliers of software that helps businesses and governments organize and analyze data to make better decisions. The industry segment is broadly known as business intelligence software. In the last couple of years, I.B.M., Oracle, SAP and Microsoft have collectively spent more than $15 billion buying makers of such software.

I think this is so important to understand that I’m planning a series of postings on this topic. Please stay tuned, and feel free to ask any questions that you might have.