2013 Growth Strategy, Focus on Core and Target Acquisitions

Streamline, core, essential, cloud – these seem to be the latest buzzwords as companies move into a new era of doing business.  Long gone are the years of corporations who spend carelessly by adding superfluous programs and people in an effort to become market leaders.   Now the strategy focus is on core products and services that stimulate growth and establish a leadership position in a defined niche as opposed to trying to be everything to everyone.  That growth will be achieved by making target acquisitions and shedding non-core units, products or service lines.

The late Steve Jobs once said, “Deciding what not to do is as important as deciding what to do.”  A very specific example of this trend is highlighted in Deloitte’s 2013 Divestiture Survey Report – “Divestitures are being … increasingly driven by their companies’ strategic growth goals which render certain assets as non-core.”  We are seeing corporations trying to get back to the basics by eliminating what’s not part of their core offerings, and being more strategic when an acquisition is made.  It’s like the entire world has adopted the Lean Six Sigma philosophy, eliminate waste – which isn’t a bad thing and, by the way, Mike George would be proud.  According to the Deloitte study, nearly half (47 percent) of respondents indicate that they expect divestiture activity to remain at the same level in the next 12 months as in 2012, while more than a quarter (28 percent) of respondents expecting an increase.  With regards to target acquisitions, research shows that these will be smaller and focused on emerging technologies that fit into long-term corporate goals.  Revenue growth is the number one goal of a target acquisition especially when organic growth is a challenge.

A probable waterfall of corporate divestitures and target acquisitions will help fuel deal activity in the coming year – an idea that resonates strongly with the M&A community.  The culprits of such a rush of activity: large cash reserves, focus on emerging technology and advantageous credit terms. Private Equity firms will play a huge role in the 2013 M&A market as they look to utilize capital, reportedly $1 trillion in reserve, and strengthen their portfolios.  Dell’s recent decision to go private is a prime example of this.  We expect Dell to completely overhaul its business and we expect divestitures to be a critical part of that plan.  Clearsight has seen a significant increase of inbound interest from investors looking for corporate divestitures and have also seen a commensurate increase in large strategics considering divesting non-core assets and enhancing their market focus and redefining what is core.