About the Author
Read an Excerpt
Super Searchers on Mergers & Acquisitions
The Online Research Secrets of Top Corporate Researchers and M&A Pros
By Jan Davis Tudor, Reva Basch
Information Today, Inc.Copyright © 2001 Jan Davis Tudor
All rights reserved.
Mark Tygart Middle Market Information Specialist
Mark Tygart is an Information Specialist at Emerge Corporation, a mergers and acquisitions advisory firm in Costa Mesa, California.
Mark, tell me a little bit about your background.
When I was growing up, I never thought that I would be an information professional. I think I would have much preferred to be a knight, or an astronaut, or something else that children prefer, but I ended up graduating with a degree in history. I had done some substitute teaching but really wasn't all that into being a teacher. One of my best friends was working in an antique shop, and at some point a person who worked at a business brokerage came in to shop and complained about the problems they were having with their research. My friend promptly exclaimed that he had done similar research when he was at Berkeley, and why didn't they hire him on the spot? They ended up hiring him about a week later, and he recruited me to come to the firm, the Geneva Companies.
How did you end up at Emerge?
When I left the Geneva Companies, there were a lot of ex-Geneva-ite people around. I began to work as an information broker with some of them for a while. Then some of the people I had done research projects for at Geneva started a company called Emerge Corp. I was available when the company was starting, and they hired me because there was a fairly high trust factor since we had worked together in the past.
What realm of M&A research are you involved with? Do you focus on a certain aspect of the M&A world?
My research falls into a couple of categories. Emerge does a lot of work for valuation purposes, so the research is essentially transactional. That means that we need to find completed deals for which the relevant financial data for the purchased company is available. We also want to know if a control premium was paid, if there was liquidity discount given, what the multiples were, and the particular industry information for that industry. We do this research at a fairly initial stage, normally when a client engages us.
What are multiples, control premiums, and liquidity discounts?
Multiples are the financial numbers that are representative of a transaction and are used as a shorthand way of talking about what price was paid for a business. Multiples are usually a fancy way of saying how much your business is really making. The key metrics are EBITDA or EBIT. EBIT means earnings before interest and taxes, and EBITDA means earnings before interest, taxes, depreciation, and amortization. By looking at a transaction we might discover that a $20 million green widget manufacturer might be selling for five times its EBITDA. The "five times its EBITDA" is a multiple.
A control premium has to do with the amount paid for the control of a business, in other words, fifty-one percent or more of the company. Premiums are often paid because a controlling interest in a business is usually worth more than a minority interest. A control premium is a discount paid for a minority interest because minority interests do not share the same benefits as a controlling interest. Minority interests are also more difficult to sell.
Liquidity discounts are often applied for liquidity — how fast you can buy and sell the stock. A public stock is more liquid because you can call your broker and simply sell all of it. This makes a public stock more valuable.
Is all this information always available for any given deal?
No, no, it is not. In fact, M&A is a fragmented informational market because the data is not well-tracked. There is never enough information available, especially the hard financial numbers that people need to do their financial analysis.
Emerge's Web site states that it provides M&A advisory services to private, middle market companies. What exactly does "middle market" mean?
"Middle market" is a rough term. We tend to use it to describe firms that have roughly $10 million to $100 million in revenue. Middle market is sort of the Twilight Zone, if you will. It's everything that's not Wall Street, and not really brokerage or Main Street. It's everything that falls in between.
What size deals are considered "Wall Street" or "brokerage" or "Main Street?"
Wall Street deals sell for $100 million and over, whereas Main Street deals sell for under $1 million. Brokerages typically handle the transactions of companies that sell for $1 million or under.
Describe a typical client that engages your firm's services for valuation.
We define our clients in two groups. Our typical clients are the more traditional brick-and-mortar types of businesses. They tend to be job shops, particularly in aerospace, electronics, manufacturing, and capital equipment industries, or fairly high-level service industries such as computer integrators. We also have an Internet practice group; I would consider Internet businesses to be atypical clients by definition because the standard valuation metrics don't usually apply.
So, for instance, a company that makes sensors would come to Emerge and engage your services to value their company, so they can sell it?
Yes. Emerge performs a valuation exercise simply because we need to know what ballpark we're in. In other words, we need to know what other people are paying for these types of companies and what the issues are. Once we've done a valuation, we need to sit back and try to find out who would be a good buyer. In fact, a lot of my research is focused on finding a buyer. I look at deals and try to figure out who's buying and why.
How do you start? Describe your typical research project.
I'll describe a deal, actually. Typically, the financial professional will want a very broad overview of the industry in which the client participates. So, he'll say to me, "Mark, I have a semiconductor capital equipment client. Could you prepare some material for me to read so I can be up-to-date on what's happening in that market before I talk to him?" That's a very general, relatively simple, request for which I might pick up U.S. Industry and Trade Outlook [151, see Appendix A] or the Standard & Poor's Industry Surveys . I may also do a quick and simple Mergerstat  or DoneDeals  search to try to find any recent transactions and deal multiples.
You just mentioned two sources, Mergerstat and DoneDeals. Can you describe these databases?
Let me back up and talk about the variety of information services that sell transaction data. Securities Data Company's (SDC) Worldwide M&A Database  tends to have the most data for the most expensive price. SDC also tends to provide data that centers on the higher end of the market, such as the large deals you might read about in The Wall Street Journal. Mergerstat is slightly more of a "hit" because it's cheaper and has more of the smaller, private deals.
Other sources we use a lot are DoneDeals and Pratt's Stats [121; now Business Valuation Resources], as well as BIZCOMPS  for extremely small deals. These databases, so far, don't cover the volume of deals that Securities Data or Mergerstat includes, but their pricing is more reasonable. I like using DoneDeals in particular because its one-time flat fee lets me play with it a little more. For instance, let's say I notice during a DoneDeals search that a number of French utilities have started buying American software companies, and I want to know what's going on with this trend. I discover that the French utility owns a publishing division, and I find out that a number of French publishers are very interested in buying American software companies, particularly ones that manufacture computer games. Because of the way DoneDeals is priced, I am able to do a lot more back-and-forth searching to learn more about trends like that.
The flexibility offered by a flat-fee subscription helps your research.
Yes, and that's very important. Being able to use a database without worrying about running up a huge bill allows me to be more creative in searching for patterns in merger activity.
Tracing trends back and forth is illuminating because many of our clients are convinced that their buyer will be their competitor. But after some database detective work, we sometimes find that the buyer will be the guy across the street who's not even necessarily in the same industry.
How does the Internet fit into your overall research approach?
I use the Internet all the time, as a delivery mechanism if nothing else. I think of projects in terms of levels, sort of like building a cathedral. I know when I've met Quasimodo in the belfry that I am involved in a very serious project. The Internet is like walking down the aisle to the altar; it's a good starting place for certain types of research.
The Internet is also a very good tool if you know how to look at data critically. For instance, if you get extremely good at reading corporate Web sites, you can tell a tremendous amount about the company. You can learn a lot about a company by reading its help-wanted advertisements. If you see, for instance, help-wanted ads for eighteen Cold Fusion programmers, that might clue you in to the type of work the company is focusing on. Another example: Web sites often provide biographies of their chief officers. I'm a big believer that a biography is probably the best single source if you want to be predictive about a person's behavior. Knowing an executive's alma mater or favorite philanthropic organization can sometimes be predictive of how he or she will respond to a deal suggestion.
Do you have any favorite sites?
Oh, certainly — I have about 400 favorites! Say I'm collecting names for a buyer search. Finding the prominent trade association in the industry is important because the association can be really useful for developing a list of buyers. There are directories on the Web that link you to trade associations, such as the American Society of Association Executives . There are also books that list trade associations, such as the Encyclopedia of Associations . Each industry chapter in the U.S Industry & Trade Outlook and the Standard & Poor's Industry Surveys contains a bibliography that lists the major trade associations.
A word of caution, however. It is not always obvious which trade association serves an industry. For instance, I remember working on an optics case where I learned that companies in this particular subset of optics were actually classified in the ceramics industry. The most important trade association for the purposes of my research was one of the large ceramic associations. I never would have thought of that, starting with an optics case. You need to talk to your client and find what trade associations he or she belongs to.
Aside from pay-for-service databases like Mergerstat and DoneDeals, do you ever find deal multiples on the Internet?
You can, but with limitations. The International Mergers and Acquisitions Professionals Association (IMAP)  does a periodic survey, but you have to be a member to access the information. There are sometimes discussions in chat rooms such as those on NVST.com , but they're controversial; chat room data tend to be more "rule of thumb."
I would imagine that you'd have to wonder about the credibility of the information itself.
That's a good point. I do tend to trust the motives of organizations such as the Association for Corporate Growth  and IMAP. I think these organizations are trying very hard to compile good information, but it is a difficult task. Not only do they have to find all the people who have done the deals, but they also have to get the brokers to divulge the specifics of the deals. In many cases, the brokers are not willing to talk because their information is proprietary.
With M&A research, we're generally dealing with a private market where one is not legally required to divulge financial information when the business is sold. Because of that, we're constantly following the press around, trying to find people who are talking about deals, or trying to talk to people who are doing public deals, or deals where one party is public, or where there's some reason why they're actually divulging the financial information. But nothing requires anyone to divulge, so that makes it like detective work for us.
You mentioned NVST.com. Tell me a little more about it.
NVST.com is a very interesting site because it acts as an aggregator of M&A-related information. They've done a very good job of linking up various sources of material. The site lists businesses for sale. In fact, there is a variety of Internet sites where brokers list deals for sale. But you have to be careful because the market is very segmented by size. Most of the businesses listed on these sites sell for under $1 million. These deals are represented by business brokers, not by the intermediaries who typically represent the middle market deals.
Would you use NVST.com to just get an idea of what's for sale?
I don't, generally; I might if I get really desperate. I don't generally use listing sites per se as a source of competitive intelligence because they work on a classified ad model, at least in terms of how most people have used them so far. They usually provide a general description of a business in a geographical area, but I would still have to talk to the intermediary to get more information. So, there's a real limit to the amount of intelligence I can gather from the site itself.
Do you ever use the phone for research?
The phone is probably the single most underrated and most valuable resource in the life of any person who is trying to collect information. The diamonds in the rough that I've received over the years have almost invariably been over the phone. In talking to some industry professional, you can find out things you'll never read in the press. Off-the-record talks with people in certain companies can provide you with some consultant-level insight. Knowing how to use a phone is probably the real art in the information-seeking industry.
I am usually interested in merger dynamics, and I love talking to trade journalists or reporters when I can because they tend to have much more of the information I need. In my experience, trade journalists are extremely friendly and helpful.
Is the middle market community fairly talkative? Will it share information?
I often think of it as being like the CIA and the KGB during the Cold War. Everybody goes for a walk in the woods and sits down and talks about the deal that they're working on and the problems that they have with their bosses.
Mark, you were recently quoted in Industry Week  about the valuation of Asian companies. Do you do a lot of research for valuations of foreign companies?
We do. We look at foreign buyers, among other things, because some very active foreign buyers are buying American companies right now. The article in Industry Week was actually about American buyers buying Asian companies. We see it both ways. We tend to be more interested in foreign buyers buying American companies, but we try to keep an eye on both sides.
In the late 1980s, there was a tremendous wave of Asian companies buying American companies. But if you look at the statistics today, the British have been the largest buyers of American companies. There are huge numbers of European and Canadian buyers, too.
In terms of your research, do you use different sources to find out about foreign buyers?
There are different sources, depending on the country. For instance, Mergerstat recently bought CorpFin, a British company that compiles deal information. Because of this acquisition, Mergerstat will now contain more European deals. Acquisitions Monthly  was another source I used to use for European deals, but that publication was just purchased by Thomson Financial and is integrated with Securities Data's Worldwide M&A Database.
You have to be careful with foreign situations because each country is unique. I once spent probably the worst week of my life trying to find ownership of a particular Indonesian company. At that point, Indonesia was under a dictatorship, and companies weren't legally required to file much financial documentation, let alone list the owners of the business. The particular business I was researching was owned through shell companies and people whose titles did not actually correspond to their authority. It was a maze of mirrors.
Excerpted from Super Searchers on Mergers & Acquisitions by Jan Davis Tudor, Reva Basch. Copyright © 2001 Jan Davis Tudor. Excerpted by permission of Information Today, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Foreword, by Martin Sikora,
Mark Tygart Middle Market Information Specialist,
Luci Barry Law Librarian and Knowledge Manager,
Lisa Doble Johnson Business Valuation Researcher,
Sylvia James Specialist in International M&A Research,
Penny Cagan Wall Street Library Veteran,
Reed Nelson Law Librarian,
Steven J. Bell University Library Director,
Rob Teitelman M&A Newspaper Editor-in-Chief,
Jim Mallea M&A Database Product Manager,
Jack Sanders Business Intermediary,
Rob Schlegel Business Appraiser,
Ed Vazquez M&A Database Product Developer,
Bruce Liebman Librarian and Information Professional,
Appendix A: Referenced Resources,
Appendix B: Glossary of Terms,
Appendix C: Bibliography,
About the Author and Editor,