Just In Time For Expected M&A Drought, Here Come The Demergers
from the spinoff dept
The credit crunch may put some M&A activity on ice, but don't expect investment bankers to go hungry anytime soon. According to a recent survey, global executives expect to see plenty of demergers -- the practice of spinning off or selling business units. Of course, these things go in cycles. After any period of consolidations, bankers will encourage companies to "unlock shareholder value", by spinning off all of those units that were acquired during the previous wave. Undoubtedly, the executives predicting more demerger activity have been influenced by what their investment banking partners have advised them. In addition to the cyclicality of this, there's another reason to expect more of this activity. Selling off business lines can serve as a substitute for selling bonds when credit markets aren't being cooperative.Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
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Filed Under: m&a
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M&A
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Monopoly With Real Money
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Re: Monopoly With Real Money
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Just good business...
- Big Company has 6 divisions (A through F) that each do some different kind of job. Big Company is flush with cash during good times and buys up 3 smaller companies making them divisions G, H and I.
- Times turn and Big Company needs to trim the fat. They take a look and divisions C and E are doing poorly. Additionally, new divisions G and I have incurred significant costs that were not expected when the original deal went through. They "unlock shareholder value" by trimming the 4 lowest performing divisions (C, E, G + I) and raising their net profit margin.
Heck, I can see this happening at a former small business employer of mine. They sell a software package I wrote for them that goes great with their hardware. Unfortunately, I've moved on and they don't have any other developers. It's starting to become mission critical that they get someone to support and enhance it, but I'm unavailable at the prices they'll pay [think 60% going rate..]. They were bought out earlier this year and I know the buyer wasn't aware of the software issues and needs because not even the owner would recognize them (most of the reason why I left). If the purchased company doesn't keep it's margins up because it can't sell the software, do you think the buying company will want to continue to support them? Personally, I think not.
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Churn
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