NEW YORK (The Deal) -- Amid an environment comprised of rapid innovation, high price expectations, activist campaigns and robust capital markets, wooing attractive takeover targets oftentimes comes down to factors well beyond the offer price, said Cisco Systems' (CSCO) Susan McDonough.
"The empowered startup is not in desperate need of cash," said McDonough, Cisco's vice president of corporate development operations and integration, at The Deal Economy Event at the Nasdaq Exchange on Thursday afternoon. "They really have perspective and want to know what we're bringing to the table beyond cash."
Of San Jose, Calif.-based Cisco's more than 170 acquisitions large and small - including its $2.7 billion blockbuster purchase of network security software maker Sourcefire. that it completed on Oct. 8, 2013 - McDonough has been involved on more than 70. Cisco, which completed eight acquisitions in fiscal 2014 totaling $3.18 billion, was among companies selected for an annual Corporate Dealmakers award Thursday night in New York City.
As technology companies such as Symantec (SYMC) and Hewlett-Packard (HPQ) increasingly announce plans to split up, McDonough stressed that companies "should hold the bar very high when they consider a breakup ... [including] potential synergies lost and the distractions it can cause." She indicated that the company will continue to execute its aggressive M&A strategy as it seeks opportunities worldwide.
Richard McPhail, senior vice president of finance at Home Depot (HD) , was among the group of participants speaking on the Corporate Dealmaker Update panel who also spoke to the challenges relating to high expectations of potential targets.
"The harder part is to a actually attract these companies that see all the Uber valuations," McPhail said, pointing to the $40 billion valuation TechCrunch attached to the company following San Francisco-based Uber's latest $1.2 billion funding round. "The companies that you do find that attractive enough to buy see themselves as the next Uber."
While Home Depot has a specific debt-to-Ebitda target, McPhail said that the company will from time-to-time leverage up and use excess cash.
Atlanta-based Home Depot, on Dec. 2, announced a deal to acquire the Hardware Solutions business of HD Supply (HDS) for an undisclosed price.
Due in part to easy access to leverage financing, Pepper Hamilton partner James Rosener described the first half of 2014 as a disconnect between buyers and sellers when in came to price expectations. The second half of the year expectations were more aligned, he said.
Many times its important for private equity buyers to spend two-to-three years establishing relationships with CEOs in the industry and developing conversations surrounding potential synergies and strategies before executing a deal.
"It's not just showing up at an auction and bidding the highest price," Rosener said.
Mary Thistle, senior vice president of business development at Cubist Pharmaceuticals (CBST) , also emphasized the importance of building a strong relationship with a potential targets across the pharmaceuticals, biotechnology and big pharma spaces.
"You have to be the preferred buyer in the eyes of that target," Thistle said, noting that during Cubist's most recent two deals it spent at least five or six years engaging with the targets prior to the transaction. "Having a deep, long relationship, having scientists collaborate, makes all those economic conversations more feasible."
The Lexington, Mass.-based biopharmaceutical company bolstered its antibiotics portfolio via its $707 million acquisition of Trius Therapeutics on Sept. 11, 2013, and $801 million purchase of Optimer Pharmaceuticals on Oct. 24, 2013.
Speaking to the proliferation of international tax-inversion deals, Thistle noted that the company spent the first six months of 2014 explaining to investors why such a structure wasn't a logical move for Cubist.
"An inversion isn't a strategy, it's a tactic. It works for some, not others," Thistle said.
Panelists also discussed the proliferation of what's referred to as acqui-hiring, a trend in which large companies buy startups primarily for the talent team.
"Three or four years ago we might not have been ready to do acquisitions like that," John Doherty, senior vice president of corporate development at Verizon Ventures said. "But particularly in the video distribution space we've gotten better at it."
Though Verizon Communication (VZ) inked much more transformative over the past year or so, the company also picked much smaller targets, such as Internet-based TV platform OnCue and video streaming company upLynk.