By  on November 17, 2005

NEW YORK — When it comes to mergers and acquisitions, having a top-notch, well-informed management team in place that can recognize its strengths and fix its weaknesses as well as work with a financial adviser can either make or break a deal.

This was one of the themes of "Merge or Acquire: What to Look for in the Deal," a one-day conference hosted by Emanuel Weintraub Associates Inc. here at the Princeton Club on Tuesday, and attended by retail, banking and vendor executives.

Laurence C. Leeds Jr., chairman of Buckingham Capital Management, opened the program with an overview of how the retail and apparel landscape has changed since the Fifties. "When I worked as a salesman at Manhattan Shirt Co. in the 1950s, there were 5,000 specialty door accounts and 250 department stores on the [sales] list. In 1990, there were still 100 large department stores. Now, with the merger of Federated and May, we have one really great national department store," Leeds said, adding that "most of the mergers have resulted in a very strong entity at the end."

Paul Charron, chairman and chief executive officer of Liz Claiborne Inc., said his firm prefers acquisitions, whereby the existing management team wants to stay on post-acquisition. "Emotional and undisciplined founders present a significant risk. We won't do that [kind of acquisition]," he said.

Charron described the 2001 purchase of Mexx as the single "most strategic" acquisition for the company. He said it gave Claiborne an "extension into a part of the world where we didn't have any meaningful presence, and where we frankly were not very good. The Europeans run our European businesses. They think with European sensitivities, and they've done a bang-up job."

The company, which won't buy companies that aren't accretive to earnings within 12 months, began its acquisition spree in earnest in 1999 when it bought Sigrid Olsen and Lucky Brands. Charron said Monet in 2000 has been the "single most accretive acquisition. We made a lot more in year one than what we paid" for the company. Meanwhile, the firm bought "Enyce because we wanted to do business with Pacific Sunwear, and it is a big supplier to D.e.m.o."For Kellwood Co., deals were initially aimed at companies that provided cash flow, but now is focused on brands that the manufacturer can grow, according to Hal Upbin, Kellwood's chairman. Upbin said a priority is making sure that the owner/management team be "incentivized to stay at least three years." Any deal must be "meaningfully" accretive to earnings per share in 12 months, which is why it won't buy either a fixer-upper or a company in a turnaround situation.

Peter J. Solomon, chairman of Peter J. Solomon Co., described what he does as the "business of financial psychiatry [because of the emphasis on] figuring out what people want to do, and then trying to fulfill that dream."

Regarding valuations: "We'll never tell you what price you should get," Solomon said. "We have no idea. None. If you run the sale process professionally, you get the best price you can get."

Marc S. Cooper, managing director at Peter J. Solomon, discussed why companies are sold and the best time for a sale. He said the "limited auction" is often the best option since the process preserves a certain measure of confidentiality as well as targets viable buyers.

Allan Ellinger, senior managing partner of MMG, advised owners to take a hard look at their companies and assess their distribution channels. He also said it was important to assess the competition. "Know the threats and opportunities that are out there," he said.

Ellinger said owners should "leave the ego at home [and] know when to walk away [from a deal]. Sometimes the best deals are the ones where you walk away."

Emanuel Weintraub, who owns consulting firm Emanuel Weintraub Associates Inc., told attendees, "Time is not your friend. The sooner you have a plan, the sooner you can act on it." He also advised firms to maintain a great relationship with their bankers, who will be helping them with possible deals.

Gilbert Harrison, chairman of Financo Inc., said there are three potential categories of buyers: strategic, either U.S.-based or international and the financial or private equity firms. "Management is most important for a buyer," he said.Harrison said many buyers want to keep existing management in place, and added that chemistry is very important between buyer and seller.

Harold D. Reiter, chairman and ceo of Herbert Mines Associates, ended the event with some words of wisdom about how the human capital side of the business is very important. "Executives whose companies are on the block are driven to call [us] because of the uncertainty," he said. "Communicate with your people."

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