There are five different types of mergers and the purpose of this blog is to describe these in more detail.  This writing is not meant to be a comprehensive description of each, but rather an introduction.

A merger is an agreement that unites two existing companies into one new company.  Generally, mergers are done to expand a company's reach, expand into new market segments, or to gain market share. Most of the time, mergers and acquisitions are done for either offensive or defensive reasons.

The Five Basic Types of Mergers

A famous example of a horizontal merger was the merger between HP (Hewlett-Packard) and Compaq in 2011.  The successful merger created a global technology leader valued at over US$87 billion.

Example:  Walt Disney acquired Pixar Animation Studios for US$7.4 billion in 2006.  Pixar was an innovative animation studio and had talented people.  Walt Disney was a mass media and entertainment company.  By combining forces, they created a very powerful company in their industry.

A good example was RBC Centura’s merger with Eagle Bancshares Inc. in 2002.  This market-extension merger helped RBC with its growing operations in the North American market.

An example of a product-extension merger would be the merger between Mobilink Telecom Inc. and Broadcom.  The two companies both operate in the electronics industry and the resulting merger allowed the companies to combine technologies and extend their market reach.

5.  Conglomerate Merger: A merger between companies in unrelated business activities, e.g., a clothing company buying a software company. In other words, two totally different businesses.  These types of mergers are also further defined as:

• Pure Conglomerate: In this case, the two companies have nothing in common. An excellent example of a Pure Conglomerate merger was the creation of W.R. Grace a specialty chemicals and industrial business that went on to buy over 150 different businesses, including retail outlets (Herman's Sporting Goods, Channel, Handy Dan, Angels, Diana, Sheplers), food chains (Del Taco, Coco's, Moonraker, Plankhouse, Houlihan's Old Place), coal, oil and natural gas (Booker Drilling, TRG, Homco & A-1 Bit & Tool, Davison cracking catalysts), construction (Zonolite insulation), graphic arts (Letterflex printing systems), chemicals (Dartak emulsion polymers, Evans sulfur compounds), agriculture (phosphate and nitrogen-based fertilizers), and hospital products (Vestal disinfectants).
  
  
• Mixed conglomerate: Mixed conglomerate mergers are ones where the two companies that are merging with each other have the goal of gaining access to a wider market and client base or expanding the range of products and services that are being provided by the respective companies. A possible example of this might be a merger of Bank of America and Starbucks, which would broaden both companies’ customer bases and product ranges.  To some extent, Capital One is already pursuing this strategy via its cafes.

Listed below is a table that summarizes the different types of mergers.

Written by He (Henry) Wang

2 April 2020

Versailles Group, Ltd.

Versailles Group is a 37-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Global M&A activity for the first quarter of 2017 was robust.  There have been US$1.9 trillion in announced, completed, or pending M&A transactions.  In comparison with Q1 2016, M&A activity increased by an incredible 72%, which is partially due to a weak start of 2016.

In the US, M&A deal activity increased in Q1 2017.  Specifically, the value of M&A transactions was 13.2% above Q1 2016.

In the middle market, there were 2,643 transactions for the quarter, the best first quarter since 2007.

Internationally, European M&A in the first quarter increased 16%, in comparison to the same period in 2016, to US$215.3 billion.  This transaction value was the best first quarter since 2008.  British M&A activity remained relatively strong in the first quarter of the year despite expectations of a slowdown ahead of the country's exit from the European Union.

M&A involving Asian companies fell 39% in the first quarter of 2017 to US$176 billion, the lowest level in nearly three years.  Tighter regulations in China have made it tougher for Chinese firms to launch takeovers overseas, which had a major impact on the region's overall deal-making in the first quarter.

There are a number of strong contributing factors to increasing M&A activity this year. First, sales and earnings growth is continuing, which portrays strong aggregate demand.  Rising demand encourages CEOs to make acquisitions to expand their businesses.  In addition, companies need to demonstrate growth to shareholders, which provides another reason to make acquisitions.  Second, the slowdown in emerging markets is forcing multinationals to find new avenues of growth.  M&A is actually the quickest route to growth.  Sometimes, it’s easier and less risky than innovation or cost-cutting.  Third, technology is also driving M&A activity.  Disruptive industries such as Artificial Intelligence, FinTech, and the Internet of Things are all continuing to contribute to M&A activity.

To summarize, overall, the M&A outlook for the rest of 2017 looks very favorable.

Written by Donald Grava

27 April 2017

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

Global M&A Has Best January Since 2000

 2016 Global M&A in Review – US Led the Way

In 2016, there were 96,665 M&A transactions closed with an aggregate value of US$4,734 billion.  In terms of deal value, 2016 was the third best year since 2007, significantly higher than any other year and only slightly surpassed by 2014, the second best year when US$4,802 billion of transactions were completed.  That being said, 2016’s M&A activity was definitely lower than 2015.

Global M&A Activity by Volume and Value

In 2016, the US once again topped the rankings by both volume and value.  Specifically in terms of deal value, US$1,617 billion of transactions were closed during the year.  Some of this activity can be attributed to the burst of mega deals led by Time Warner’s US$109 billion acquisition by AT&T, which was the largest transaction in the US, the second largest M&A deal globally, and one of the only two global deals worth over US$100 billion during the year.

Following the US’ leading position, China was second with a value of US$789 billion. The largest deal by value involving Chinese targets was the transaction between China National Petroleum Corporation and Jinan Diesel Engine in a reverse takeover worth US$11 billion in December.  Chinese companies completed ten of the top 20 deals in Asia-Pacific in 2016.

The UK was third with US$420 billion of transactions. The largest deal by value in the UK involved Anheuser-Busch InBev’s US$124 billion acquisition of SABMiller, which was also the largest globally.

With strong M&A performance in the US, China, UK and other countries combined with an environment that is conducive to M&A, sellers or buyers should have the confidence to embark on a transaction in 2017.

Candidly, now is the best time to make plans to complete a transaction in 2017.  Sellers should act before buyers/investors’ investment plans and funds have been devoted to other transactions.  Buyers should take advantage by identifying the highest quality targets and moving on them quickly to avoid competitive bidding situations.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

7 February 2017

M&A in 2017 

The chart above depicts M&A activity by value.  As you will note, 2016 was about 16% lower than 2015 even though it was the third busiest year ever.

M&A in 2017, for a number of reasons, is projected to be robust and will probably be a record year for several reasons, including:

► In 2016 private equity firms raised almost US$250 billion for acquisitions, which is now available.

► Large corporates worldwide are still "sitting" on very large amounts of cash that they need to deploy.

► The new US President is expected to make some fundamental changes that will be business friendly.

► Buyers and sellers are expected to take advantage of current market conditions.

► The low growth economy encourages the use of M&A as a tool to grow a company, acquire technology or R&D, etc.

► Interest rates are still low, but are expected to increase over time - motivating buyers to move sooner rather than later.

►Looming economic uncertainty is motivating buyers and sellers to complete transactions.

►Sellers worries about valuations, which were an impediment in 2016, have been alleviated.  Now, sellers are becoming worried that if they don't complete a transaction in the near term, they may miss the "window."

2016 - A Financial Reap

As we leap into 2017 and begin to look at the future ahead, we must also look at some of the most impactful events that occurred in 2016.  While a full narrative of 2016 could fill a book, this is just a brief overview.  The exciting part is that 2016 has set the stage for robust M&A activity in 2017.

2016 began with Wall Street indices declining a record 10% in the first two weeks of trading, which marked the worst two week start for the stock market in history.  This downward spiral could be attributed to China’s slowing economy and depreciating currency.  As the stock market continued to plunge, oil followed suit, dropping to below US$30/barrel early in 2016.  The amalgamation of falling stock prices and a huge oil oversupply were the driving forces to the massive drop from the 2014 fourth quarter price of approximately US$100 per barrel.  Throughout the year we saw a rebound in not only stocks, but oil as well, primarily due to the supply rebalancing and various OPEC agreements limiting production in 2017. 

The next major event came in June, when we saw the UK vote to leave the European Union, causing massive unrest regarding the future of markets and international trade.  US markets fell in the days following Brexit, but rebounded in a rally that erased the initial decline. 

As a whole, 2016 was the worst year the US has seen for IPOs since 2003, with capital raised from new issues down 40% from 2015.  According to Jonathan Gertler, CEO and managing partner of Back Bay Life Sciences Advisors, there is no debate on whether the IPO market is softer than in recent years, and he believes it to be mainly due to volatility in the US economy and “an exuberant market that drove valuations exceedingly high,” in the biotech industry specifically.  He went on to say that in the current market there is an abundance of uncertainty, which does not bode well for high-risk stocks, newly public companies specifically.

A portion of this uncertainty that Gertler spoke about can be attributed to the surprise election of Donald Trump, as many firms and businesses prepared for an economy with Hillary Clinton in the oval office.  On November 8^th, we saw the markets being agitated as the polling numbers continued to pour in favoring Trump, but this rally continued to build upon itself through the holidays.  Major indices saw gains of between six and twelve percent through the end of year as many traders continued to bid up stocks as they “saw” deregulation, lower taxes, and increased infrastructure spending in the near future. 

As the markets have improved since the Nov. 8 election, the Federal Reserve decided to raise interest rates by 25 points in December.  Many believe the rate hike was a product of higher home prices, decreased unemployment, and improved confidence in the market that led to the Nov-Dec rally following the election.  Traders currently expect around two or three additional rate hikes for 2017, and according to the December Fed meeting minutes, rate hikes may be higher than previously expected in order to better control the growth of the economy. 

In the final days of 2016, markets hit records highs, with the Dow coming ever so close to the 20,000 mark, which many investors believe is simply a psychological barrier.  While 2016 had many quick turns and shocks (Brexit, Trump, etc.), the market and economy as a whole were able to come out on top in terms of growth and prosperity.  

The stock market exuded great resiliency in 2016, which began with a record-setting worst market performance in history to finish at record highs and prepare the US for a prosperous 2017.  

With regard to M&A activity, 2016 was the third best year ever; however, M&A decreased between 16 and 20 percent from 2015 levels.  M&A activity is expected to be exceptionally strong over the next two or three years, but will peak in 2017.  Therefore, people interested in completing a transaction should execute now.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

11 January 2017

M&A Outlook for 2017

M&A activity, in 2017, is expected to pick up dramatically for four reasons.  First, the strong equity markets are generating optimism as they are usually a leading indicator.  Second, in a recent survey, an unprecedented number of business owners or executives claimed they are planning an M&A transaction in the next 12 months. Third, many domestic and European companies have accumulated large cash balances that are available for acquiring new businesses.  Fourth, private equity firms are sitting on a record US$1.1 trillion in un-invested capital and are expected to boost the number of completed transactions globally.

It’s expected that the North America M&A market will be strong for the next three years, particularly in the US.  However, M&A transactions in the US will peak at US$1.5 trillion in 2017, which is indicated in the chart below. 

Logically, sellers should take advantage of 2017’s robust forecast.

On a global scale, US$2.7 trillion of M&A transactions were completed in 2015.  It’s been forecasted that US$3 trillion of M&A transactions will be closed in 2016.  In 2017, it’s expected to increase, again, to US$3.4 trillion.

With regard to the European market, inbound M&A transactions, by US companies taking advantage of a stronger US dollar, are expected to increase.  The UK, Germany and Spain are the most attractive investment destinations, while France and Italy remain less interesting.

On the other side of the world, the re-emergence of Asia as one of the world’s most dynamic growth stories is steady and striking.  China Yuan’s depreciation and the bursting asset bubble have spurred increasing outbound activities by Chinese buyers into neighboring Asian countries as well as developed countries.  At the same time, the Chinese Government is starting to control this outbound activity, which may alter some of this activity.

Lastly, the Africa and Middle East markets are worth paying attention to as oil prices rebounded after OPEC announced production cuts. A recovery in oil prices will enable more available funding, which subsequently may boost deal-making activities in the region.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

15 December 2016

Market Price - When To Accept An Offer

Versus When To Walk Away

Sellers always want to know whether they are being offered a fair value for their company, or if they should just walk away from a potential sale.  Typically, one considers general valuation ranges for a business based on multiples of the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization).  The multiple will be specific to the type of business being sold and its growth projections.  While these multiples may be helpful at first, the true market price of the company is discovered once the bids from perspective buyers are compiled.  Clients are often surprised by how close in value the offers are, but it’s because that value range is the market price.  Selling a business is a simple example of supply and demand; the buyer’s bids find the equilibrium.

When should I accept a bid? 

Accept a bid that comes in at market price as defined by the offers that are received.  One trap that sellers fall into is that after the bids are compiled, they decide their business is worth more.  While it is always preferable to receive a higher value, sellers must be realistic and honest with themselves about price.  When selling anything, there’s always a maximum value that can be obtained.  There is no such thing as a dumb buyer that will pay an outlandish amount.

The next key mistake is when the seller decides to hold onto their business, believing that all the potential buyers are wrong about the company’s value.  These individuals convince themselves they can keep growing the business and sell it for more in one to three years.  Anything can happen in a year or two, and in this scenario M&A is very much like gambling—it’s better to just quit while you’re ahead.  Most companies are not going to have high growth rates forever, and eventually the financial projections will not look as promising.  Selling a business now while it’s stable is more realistic than expecting a higher value in a few years when the circumstances, including the economy may be very different.  And, if there are any “hiccups” with the business, e.g., the loss of a large customer, the business may not even be saleable.  The risk of holding is enormous; especially when one considers that most company owners have a majority of their net worth in the business.

All in all, if most of the bids are around the same number, it is advisable to accept an offer and move on.  Business owners must understand that there is a good chance these bids are the highest value they may ever see for their company.  Blockbuster Video and the music CD business are excellent examples of why business owners should act sooner rather than later.

When should I walk away?  

Sellers who are not using an M&A advisor should generally be more cautious when accepting a bid.  True market value can only be determined by receiving a number of offers or at least testing the market on a worldwide basis.  Individuals attempting to do a deal on their own may not be entirely happy with the offers they have received, which may be the result of only having reached out to a limited number of buyers.  It’s unlikely that a small pool of prospective buyers would reflect the true market price for a business.  If you feel uneasy about the bids and have not had a professional explore all possible options on your behalf, you should strongly consider whether the offer is worth taking.  When selling a company, the seller should be confident that he or she has been in touch with every possible buyer and that to the extent possible, an auction has been established.  Anything short of that might portray an offer that is below market value.

Versailles Group, Ltd.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

4 December 2016 

Value and the sale of your business

When considering the sale of a business, it is very easy for a business owner to be uncertain or even pessimistic about its value.  This is definitely a mistake, particularly because it can cause a potential seller to miss out on possible opportunities.

It may be ironic that I founded an M&A boutique firm to help people sell businesses; however, my own father, when I was young, who owned a small chain of variety stores, decided to close the business rather than sell it.  He sincerely believed that no buyers would be interested.  Mind you, he didn’t test that theory; however, he thought he was right.

A business owner should never assume that his or her business is too small to be of interest to a large company.  It is important to remember that there is a difference between the financial value as portrayed by the financial statements and the market value.  The market value includes more than just how much the company is worth monetarily.  It includes the value of intangible assets for example, the customer base, distribution network, location, having a unique service or product, long term and loyal customers, name recognition, etc. These factors go way beyond the balance sheet and income statement.  These and other factors always contribute to a company’s value but are not always easily quantifiable.

Additionally, just because a company has modest financial results does not mean it will not sell.  Buyers will look at the future of the company and make an assessment of its potential.  This is especially true when the economy is in a down cycle.  It is also important for the seller to accurately analyze the business’ true financial position, marketability, and potential.  A good M&A advisor will know how to do this quickly and accurately.

For a company with modest financial results, it is important not to oversell the company as buyers may pull out if they feel the current financial results are unsustainable or the revenue and profit projections are unrealistic.  When pursuing the sale of a company, one must strike a balance between underselling the company and overselling it and scaring off or losing potential buyers during the sales process.  Once again, a good M&A advisor can help strike the necessary balance.  The advisor can also provide value-added by finding the “right” buyer who will understand the value and potential of the company for sale.

Versailles Group is a 30-year-old boutique investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million. Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. 

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President - Versailles Group, Ltd.

+617-449-3325

M&A - An Effective Tool To Enhance Growth

Mergers and acquisitions are an effective and efficient substitute for R&D for companies that need help combating shrinking market share or stagnant growth. In some cases, companies are confronted with fierce competition from startups and utilize M&A as a way to “outsource” R&D and leave the risk of innovation to startups that tend to excel at R&D. Many of these companies are skipping R&D almost entirely by acquiring other companies. This trend is true in almost all industries and many of the transactions are cross-border.

The chart below depicts the top three sectors for cross-border M&A.

In recent months, Samsung has been actively involved in M&A deal making as a way to instantly build up its capabilities in emerging technologies such as mobile payments, cloud-based services, and artificial intelligence.

Samsung’s planned purchase of U.S. autoparts supplier Harman International Industries Inc. for US$8 billion in an all-cash deal that instantly makes Samsung a major player in the world of automotive technology. It’s an excellent example of a company that is using M&A to expand. This deal will be South Korean smartphone maker’s biggest acquisition in history.

M&A in general and cross-border M&A in particular, is a well-proven way to enhance shareholder value, either by acquisitions or divestitures. While most of the press is focused on the large transactions, middle-market companies can also utilize this “tool” to make defensive or offensive acquisitions or divest businesses that no longer fit the company’s strategy.

The chart below demonstrates the growth of cross-border M&A deals from Q2 2016 to Q3 2016.

Versailles Group is a 30-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues greater than US$2 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services and has been completing cross-border transactions since its founding in 1987.  

More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For additional information, please contact

Donald Grava

Founder and President

+617-449-3325

November 25, 2016