Acquisitions and Divestitures

We have recently had some questions about our lack of activity in the merger markets. We have neither bought nor sold assets in the recent past. Many have speculated that this is due to the recent credit crunch. In fact that is not the case. We are as liquid as ever and have plenty of available cash and available credit lines.

Our simple reason for inaction comes down to the multiples that are offered in the market. Companies frequently will make offers based upon some multiple of earnings and present this as a price or offer. We have found that the multiples are either too high or too low for us to take action.

We freqently find multiples are too high when a buyout offer is made for one of our divisions. This can only be due to our financial projections for the division being too low. Managment of these divisions must have been sandbagging their growth estimates, or we would see a similar price as fair. As a matter of policy we now will raise the profit targets for divisions which have been approached in this manner.

The opposite is freqently true when we go to buy a company or division. Our projections indicate that our negotiated multiple is too low to make the purchase. If they were as good as we think they are, they could clearly ask for more money. The only logical answer is that our analysis is wrong, so we have been documenting these lapses in judgment from our business development team. It is quite likely that if this continues, some of these people will need to be fired.

If there is one thing that I've learned, there is no such thing as free money. If the price isn't fair some one is going to loose money, and that will not be short bus ventures.