Philip Jenks - Stock Market Trading Rules: Collected Wisdom From 80 International Stock Market Experts

• Safari Home Icon Safari Home
• recommendations icon Recommended
• icon_Playlist_smlCreated with Sketch. Playlists
• search icon Search
• navigation arrow Expand Nav
  • recent items icon History
  • topics icon Topics
  • MaskCreated with Sketch. Learning Paths
  • offers icon Offers & Deals
    • Newsletters
  • highlights icon Highlights
  • settings icon Settings
  • Support

  • settings icon Settings days left in your trial..
  • Support

Find answers on the fly, or master something new. Subscribe today.

HARRIMAN HOUSE LTD

3A Penns Road

Petersfield

Hampshire

GU32 2EW

GREAT BRITAIN

Tel: +44 (0)1730 233870

Fax: +44 (0)1730 233880

email: enquiries@harriman-house.com

web site: www.harriman-house.com

First published in Great Britain in 2001

This eBook edition 2012

Copyright Harriman House Ltd

ISBN: 978-0-85719-213-4

The right of the contributors to be identified as authors has been asserted by them in accordance with the Copyright, Design and Patents Act 1988.

British Library Cataloguing in Publication Data

A CIP catalogue record for this book can be obtained from the British Library.

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher.

No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Authors, or by the employers of the Authors.

The rules provided by the Authors are not offered as, nor should they be inferred to be, advice or recommendation to readers, since the financial circumstances of readers will vary greatly and investment behaviour which may be appropriate for one reader is unlikely to be appropriate for others.

Authors have contribued their rules in an individual capacity and, even where the name of their employer is referred to in the text, the rules should not be attributed to the employer or any other named body, nor to the author as an employee or representative of that employer or other body.

David Braun

David Braun founded and is President of Virtual Strategies Inc., a consultancy which advises clients on proactive acquisition or divestiture programs.

The firm has acted for small and family-owned businesses, as well as Fortune 500 and multi-national companies, in a wide range of manufacturing and service industries.

Over the past 10 years, Mr Braun has lectured to over 10,000 top-level business executives, through the American Management Association and various industry organizations.

How to make gains from M&A activity

1. Invest in experienced buyers.

If youre investing in a company that is entering acquisition mode, make sure the people running it are experienced in M&A. A company that has executed a few successful deals recently is a better bet than one which has just started to think about making acquisitions.

2. Back an acquiror with a comprehensive strategy.

To maximize the chances of making successful acquisitions, an acquirer needs to have a compelling external growth strategy, with associated milestones and timeline. Avoid investing in one-trick ponies those companies looking for the one silver bullet acquisition that will propel them to where they want to be.

3. The acquisition of a great company is only as good as its integration plan.

The acquiring company needs to have a solid integration plan that solicits involvement from key management in every major functional area. Look for evidence of a 100-Day Plan which illustrates in detail exactly how the two companies will be fully integrated 100 days after go live day (the close).

4. Ignore the financials.

Well, not entirely. But avoid investing in a company that is making acquisition decisions based on its CFO saying we can get a great price on this company. Remember, a balance sheet doesnt generate profits - people do. Accretion/dilution should not be the number one acquisition criterion. Simply stated, you can overpay for a good company and recover your earnings with time, but you can underpay for the wrong company and never recover.

5. The customer is always right.

When deciding whether consolidation makes sense for a company whose stock you own, consider its customers. The mere fact that a sector is fragmented does not make it ready for consolidation, and conversely, there are plenty of fairly concentrated industries that are still managing to consolidate with impressive multiples (e.g. banking). A good rule of thumb is to look at the industrys customer base and determine if there is demand for consolidation. Good industries to watch are those that have major, multinational customers that will demand a wider-spreading presence.

6. When investing in potential takeover targets, do your homework.

Dont rely on hunches, gut instinct, or market rumors. Identify companies that are likely sellers due to below average stock performance (and restless shareholders), older senior management, ownership base, etc. The market may unfairly undervalue some companies by painting them with the same brush as an entire underperforming industry group.

7. Dont be duped by a targets stock that is on sale.

Avoid arbitrarily investing in a stock that seems to be underpriced in the hope that it will later be sold for a premium. Many stocks, while appearing to be bargains, are simply broken or long-term underperforming stocks. Just because the stock was once trading at a much higher level it is by no means certain that the stock will ever return to its previous high.

8. An acquisition premium may already be built in to a stock price.

Do not necessarily vote against the sale of control in a stock you own because the offer price is not at a significant premium to the current market price. The market may already have incorporated an acquisition premium into the stock, therefore minimizing the potential for an additional premium offered by a buyer.

9. A receding economy creates novel M&A opportunities.

Many people assume that a downturn in the economy will drag M&A volume down with it. In fact, shifting market dynamics of any kind will change the complexion of deals, but not necessarily the volume. For instance, a company that has been on a buying spree to diversify its business may decide, in a tightening market, to return to its fundamental competencies and sell off a non-core business line, thus creating an acquisition opportunity for a buyer.