M&A – What’s the Big Deal?

You may have noticed that mergers and acquisitions, or M&A, has seen a boom recently. The latest and most notable has been Warren Buffet’s Berkshire Hathaway’s acquisition of Precision Castparts Corp. here in Portland for a fat $32 billion. Our own firm has been furiously working on a few since the beginning of the year, including GlobeSherpa and World Class Technology Corporation.

So why is this? Our partner, Bill Caffee, was featured on NPR’s Marketplace to help explain why. It’s a short segment, so here are his further thoughts on the matter:

• Cheap money from banks and private equity, as well as retained earnings of acquiring companies, makes it cheaper to do a deal.

• Revenue and earnings are down in the low growth economy so it’s more tempting for CEOs to goose earnings by financial engineering, hence M&A (if you can’t grow, buy growth).

• A buyer can control costs (beat up on vendors) and gain larger market share by acquisition.

• Some industries, like healthcare (The Affordable Care Act creates more customers), are so hot it’s buy or be bought.

He goes on to provide this small caveat: “Now, while all of these reasons sound great, it is my understanding that business school studies show that M&A is usually a bad idea and doesn’t fulfill expectations, but it certainly can move the stock.”

You can hear the full segment, and see the article, on Marketplace here.