Mergers and Acquisitions Strategy for Consolidations: Roll Up, Roll Out and Innovate for Superior Growth and Returns / Edition 1

by Norman W. Hoffmann

Overview

"Rich in examples and details, well-grounded in wisdom from years of experience, and blessedly practical . . . . engaging, well-written, and loaded with worthy insights. Study this book and prosper." — DR. ROBERT B RUNER, Dean, University of Virginia’s Darden School of Business, and author of Deals from Hell, The Panic of 1907, and Applied Mergers & Acquisitions.

"Drawing on his experience with more than 100 M&A transactions, Hoffmann has written a defi nitive 'how-to' for acquiring companies in the below $50 million sales market space. The examples . . . [offer] astute insight into every feature of the topic." — DR. NANCY BAGRANOFF, Dean, Robins School of Business of the University of Richmond; President of the American Accounting Association; and coauthor of Core Concepts of Consulting for Accountants and Core Concepts of IT Auditing.

"This is a wonderful history with compelling lessons from the great successes of the Trader Publishing and Landmark Communications leadership and business model. The reflection on past deals gone wrong helps the reader understand why you do deals, how to pursue M&A, and what principles you need to be successful." — MACON B. ROCK, founder and Chairman of Dollar Tree Stores, Inc.,and founder and former President of K&K Toys.

"A must-read for those who hope to start small and grow big by acquiring, improving, and innovating. Following his rules may not lead you to be part of the 1 percent, but it will certainly keep you from being part of the 70 percent that fail." — HOWARD S. TEVENSON, Senior Associate Dean, Harvard University; Director ofPublishing, Harvard Business Publishing Company board; and author of New Business Ventures and the Entreprenuer, Make Your Own Luck, and Do Lunch or Be Lunch.

Product Details

ISBN-13:	9780071793421
Publisher:	McGraw Hill LLC
Publication date:	08/17/2012
Pages:	320
Sales rank:	549,806
Product dimensions:	6.30(w) x 9.30(h) x 1.20(d)

About the Author

Norman W. Hoffmann has 30 years of experience in mergers and acquisitions as a founding executive of Trader Publishing Company and its predecessors. As Chief Financial Officer of Trading Publishing Company/Dominion Enterprises, Hoffmann has evaluated thousands of prospective acquisition opportunities and personallyidentifi ed, cultivated, and completed more than 70 acquisitions while participating in another 80 in support of rollup strategies.

Read an Excerpt

MERGERS AND ACQUISITIONS STRATEGY FOR CONSOLIDATIONS

Roll Up, Roll Out and Innovate for Superior Growth and Returns

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By NORMAN W. HOFFMANN

The McGraw-Hill Companies, Inc.

Copyright © 2012Norman W. Hoffmann
All rights reserved.
ISBN: 978-0-07-179342-1

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Excerpt

CHAPTER 1

The Acquisition Imperative

"By the year 2023, newspapers will cease as a mass medium," said Bill Diederich, chief financial officer of Landmark Communications, on a cloudy autumn afternoon in 1983.

"That's preposterous," said a newspaper executive. "That's just 40 years from now, and it's absurd to believe that could ever happen. Newspapers have never been stronger than they are today. Reaching almost every household, they are the most efficient advertising medium within local markets. Frankly, our industry's profits are almost embarrassingly robust, and that kind of decline is simply unimaginable in such a short period of time. How could you possibly assert such an outrageous idea?"

"Just look at the circulation trends," Diederich said with a serious glint. "In 1950, newspaper household penetration was over 110 percent because the average homeowner subscribed to both the morning and afternoon newspapers. By 1960, that figure had dropped to something under 100 percent, and it dropped again to less than 90 percent in 1970. Today, it is less than 80 percent, and, one could argue, there's nothing to stop it from declining further. With broadcast, cable, and other media, younger people just aren't developing the newspaper-reading habit of their parents."

"Oh, those declines are just occurring because people are giving up their afternoon newspaper."

"True. Even the parents are satisfying their appetite for the day's events by tuning in to the evening news broadcasts on television. That transition will continue unabated, particularly with the development of Cable News Network and more comprehensive local news broadcasts."

"Well, there's some truth to that, but there's nothing to replace the morning newspaper. We're conscientiously tailoring our content to appeal to younger readers already. Your own group has done a marvelous job of creating neighborhood-zoned editions to ensure their local relevance and compelling consumer appeal. Hell, Bill, newspapers have thrived in this country since colonial days, and I figure they've got another 300 years in them."

"I wish you were right, but unfortunately, you're not."

The need to reinvest in new products and services to ensure an organization's future is one of the fundamental justifications underlying the acquisition imperative. The modern world is fast-paced and ever-changing, and today's successful business will fall prey to the erosion of its core if it fails to respond to competitive pressures and the evolving demands of constantly shifting consumer preferences and needs. To survive in this increasingly turbulent environment, businesses must invest to adapt, creating or acquiring new products and services to satisfy changing social and customer needs.

In the newspaper industry, profits were substantial in the late twentieth century, sometimes exceeding 30 percent of revenues before taxes, and needs for capital expenditures were few. Newspapers therefore represented a herd of milkable cash cows, generating a bountiful flow of capital to pay dividends or fund an aggressive acquisition strategy. Founded in 1905 as Norfolk Newspapers by Samuel L. Slover, Landmark Communications, Inc., became one of the many that did both, and its acquisitions and development efforts were characterized by the practice of making seminal investments that, through conscientious development and innovation, led to the creation of an enterprise that thrust its entrepreneurial leader, Frank Batten, firmly into the ranks of the Forbes 400.

Stepping into the leadership role at age 27 in 1954, Batten leveraged the resources and talent of the company's Virginian-Pilot to create a media group composed of metropolitan newspapers in Norfolk and Roanoke, Virginia, and Greensboro, North Carolina; community newspapers in over a dozen states; the eighteenth largest cable TV operation; The Weather Channel; and several radio and television stations. In 1985 Landmark made its first acquisition of classified advertising publications such as Tradin' Times and Auto Trader, and in 1991 it used those publications to create Trader Publishing Company with Cox Enterprises, Inc., as its equal partner. Trader in turn continued the growth pattern to post 2006 revenues of $1.3 billion. At that time, the partners' interests diverged, and the company was split, with more than half the revenues and company returning to the Landmark fold as the newly renamed Dominion Enterprises.

In a private company owned primarily by the Batten family and its key managers, Landmark's owners were driven to create value. From its genesis, its profit-rich Virginian-Pilot newspaper did pay out handsome dividends to its owners, but its leaders understood there was more to be gained by reinvesting the funds in other businesses. Dividends, after all, are taxed a second time when the recipient receives them, and they therefore contain an element of wealth destruction. That was particularly the case during the 1950s and 1960s with their confiscatory tax rates, but even with today's less onerous capital gains taxes of approximately 20 percent (combined state and federal), every dollar paid out in dividends nets to just $0.80 remaining for reinvestment by the individual. Since a substantial share of the free cash flow was retained within the company, wealth could be conserved, and by reinvesting it in the acquisition of high-potential businesses, it theoretically could be redeployed into value creation activities, further benefiting the owners. This is the same rationale exploited by Warren Buffett, whose Berkshire Hathaway has never paid a dividend but has produced exemplary double-digit annual returns over almost five decades.

Moreover, the profits arising from investments in acquired businesses could be partially shielded from taxes by the depreciation and amortization write-offs accruing from acquisitions. Before the adoption of the Tax Reform Act of 1986, corporate acquirers were permitted to step up the tax basis of acquired assets to reflect the full premium paid in a stock acquisition. In effect, the government tax structure subsidized the purchase by permitting subsequent profits to escape taxation to the extent that they were so covered: $1 million of depreciation sheltered $1 million of profits, saving the company and its owners $400,000 in taxes (assuming combined state and federal rates of 40 percent). Although the generous step-up provision no longer exists for stock transactions, the opportunity to shelter profits remains for asset transactions. By buying the assets of a company instead of its stock, the acquirer can depreciate their values and amortize the full premium paid for goodwill over 15 years as tax write-offs, capturing tax savings that produce the approximately 40 percent acquisition subsidy. Notably, such tax benefits are not obtainable by an individual who invests in stocks and bonds.

Though cognizant of the tax benefits, Batten and his key managers were emboldened to acquire attractive companies because they had confidence in their managerial skills. They understood that Landmark's human and operational resources were valuable assets they could leverage in concert with astute acquisitions to produce superior profits. With those resources, they believed they could prudently invest the cash better within the company, producing better returns than they could earn as individuals.

There are, of course, scores of other justifications for merger and acquisition activity, and the academic journals are filled with commentary analyzing those motivations. Hubris, the excessive pride and self-confidence of the Greek tragedy's protagonist, has often been identified as the driving force that compels leaders to pursue acquisitions. To justif
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Excerpted from MERGERS AND ACQUISITIONS STRATEGY FOR CONSOLIDATIONS by NORMAN W. HOFFMANN. Copyright © 2012 by Norman W. Hoffmann. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Acknowledgments vii

Trader Publishing Company Acquisition and Development Timeline 1

Introduction 3

Chapter 1 The Acquisition Imperative 17

Chapter 2 The History of Rollups 31

Chapter 3 Landmark Communications Rollups and Rollouts 51

Chapter 4 Prospecting for Opportunities 63

Chapter 5 Rollup Valuation 73

Chapter 6 Striking the Deal 85

Chapter 7 Structuring the Deal 105

Chapter 8 Rollup Pitfalls 131

Chapter 9 Components of Rollup Success 155

Chapter 10 Achieving Rollup Efficiencies and Implementing Best Practices 173

Chapter 11 Rollout Initiatives 193

Chapter 12 Innovation of Process 205

Chapter 13 Transformative Innovation 217

Chapter 14 Identifying Rollup Opportunities 235

Chapter 15 Conclusion 261

Appendix: History of Trader Publishing Company 269

Trader Publishing Company Acquisition and Publication Start-Up Summary 272

Notes 273

Bibliography 285

Index 295