M&A

M&A

For the last segment we are learning about M&A through a really interesting case project about Kellogg in 1999: slowing growth in cereals, lots of cash, need to match the size and market power of the retailers on one side and the food processors on the other, the hunt for faster growing product categories and meeting the needs of changing "on-the-go" and ethnic lifestyles.

We are stalking a takeover target and trying to match the opportunities with our needs. This afternoon, we dig into "synergy" analysis and methods for quantifying and analyzing them. You always read about this crap in the newspapers and it's usually the advice of investment bankers ("You can save 10% on manufacturing costs... you can ramp up new product growth...") without deep understanding of actual businesses. We, obviously, have very deep understandings of actual businesses.

This I can tell you even as a novice because our analysis goes far beyond the "industry comps" and "financial ratios" that I have always seen bankers focusing on. Those are the drivers of their analysis -- can we bring our company in-line with the industry average opex/sales ratio? Maybe.... What is driving up marketing expense? Do we just graph it as a straight line? It isn't clear.

Beyond the financials are the strategic and market dynamics concepts that they've been teaching us about for a few weeks now. The power with vendors, the qualitative differences in the distribution network strategies, the scale economics of purchasing inputs as a buying unit, etc. These ideas guided us to look at the financials in more educated ways, and helped us decide how to tinker with projections and valuation.

My assessment is that this overall approach produces really valuable insights, and that many of the "standard tools" that we use (certain financial measures, frameworks for markets, etc.) are in fact rather powerful. You can improve your analysis a lot simply by adopting them. The further insights of course are for us to add, and we are trying to do it.

M&A cases are pretty fun -- but I think they involve a lot of wheel-spinning as you evaluate options. I don't know if I want to be staffed on something so time-intensive and flashy. I'm interested in launching interesting new products, joining new markets, or re-designing market positions for big players. We'll see if they let me do that.