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In M&A and Poker the Goal is to Make 1+1=3
November 17, 2015
In a Huffington Post BusinessBlog, Brandeis University professor Ben Gomes-Casseres discusses what the “players” in M&A transactions hope to achieve with a unique comparison to poker! The main point is that the objective in virtually all M&A transactions (and JVs, alliances, consortiums, partnerships, etc.) is to make 1+1=3.
Professor Gomes-Casseres compares M&A to poker as follow;
“At any point in the game of business, every company holds certain cards. Some of these cards are aces, like the patent on a blockbuster drug or the copyright on an essential piece of software. Most of the cards are less lofty assets -- factories, distribution outlets, brand names and teams of people with know-how.”
“The most important game rule is this: With the exception of those aces, what each card is worth to a player depends on the other cards that player holds. In poker, if you hold the five, six, seven and eight of spades, getting that nine of spades gives you a straight flush -- not bad for a set of mundane cards!”
This poker concept can also be applied to microcap public companies. Microcaps often have an ace, or two, and a few “less lofty” cards. While on their own most microcaps’ hands are difficult to turn into successful businesses, strategically acquiring a few new cards can allow microcaps to turn their losing hands into winners!
According to Gomes-Casseres most mergers today are “about assembling a more valuable collection of cards. The claim is usually that the combination will be more profitable than the separate businesses. The shorthand for this idea is 1+1=3.” He continues; “When done for the right reasons, these combinations bring in new ideas, provide access to new capabilities and markets and let companies leverage what they do best. That is why mergers are hot today.”
When it comes to acquiring a “more valuable collection of cards”, microcaps are uniquely positioned because of their access to acquisition funding and their ability to use publicly traded stock as part of their purchase price(s). By leveraging their unique attributes, microcaps can acquire more/better cards to make stronger hands faster than comparable private companies. With M&A activity in the microcap space on the rise, we wait to see how microcap management teams “remix” their cards to create value for their shareholders and turn 1+1 into 3.
Acquis Capital is a private investment firm that specializes in funding strategic acquisitions. Acquis Capital's mission is to facilitate strategic acquisitions that increase the book and market value of top tier public companies, with market capitalizations under $300 million. To learn more please contact us today.