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Mid-market mergers and acquisitions expected to rise in 2013

Corporate dealmakers are forecasting a strong 2013 for prospective buyers and sellers of mid-sized companies after mergers and acquisitions picked up at the end of last year.

Despite the perceived glut of corporate cash, executives from three of Connecticut’s biggest employers cautioned at a Jan. 4 event in Stamford that their respective companies would continue to be selective about what they’d consider acquiring.

Xerox Corp. Chief Strategy Officer Uta Werner said the Norwalk company is expecting to make about $500 million in acquisitions in 2013, focusing primarily on companies in the services area.

However, Werner cautioned against pitches that are too broad or not in sync with what the prospective buyer might be in search of.

“I think there’s a lot of pitching going on, to a broad audience,” Werner said at the panel discussion hosted by the Association for Corporate Growth (ACG) Connecticut chapter at the Stamford Marriott. “We really want to buy companies that strategically fit with what we do. And so, think about the target and who would be the perfect owner … and keep a short list as opposed to just sending it (a pitch) around to hundreds of people.”

Michael Carter, a managing director of Carter Morse & Mathias, a boutique investment banking firm in Southport, said strong merger activity in the fourth quarter of 2012 will likely spill over into 2013.

“We’d like to think that next year will be a very strong year for (mergers and acquisitions),” said Carter, who moderated the discussion. Of the upswing in activity at the end of last year, he said, “Hopefully that’s not just a tax blip but a trend. The capital is there.”

Werner was joined by panelists Bill Striebe, vice president of business development for United Technologies Corp.’s (UTC) Climate, Controls and Security Systems unit, and Pam Tomczik, vice president of business development for Thomson Reuters Corp.’s Intellectual Property and Science unit.

Tomczik echoed Werner, voicing frustration with pitches for companies whose functions are broad, hidden or unexplained.

“What’s really frustrating is when you get a teaser or someone calls you and they just say, well, it does compliance. For what?” she said. “Being specific and straightforward about what the services, software, content is goes a long way … it helps vet it and it also helps us get it in front of the right people.”

Added Tomczik, “If sellers aren’t transparent, that’s the deal killer for us.”

The panelists also advised sellers to be aware of transitions at the corporate level.

After making numerous acquisitions in the 1990s and 2000s without seeing the anticipated growth in earnings, UTC’s Climate, Controls and Security Systems unit sold many of its businesses that were either non core or not scalable.

“The problem was that we were acquiring a lot but not really moving the needle on our return on sales,” Striebe said. “The questions were, are we too big, are we too complicated, are we trying to do too many things at once?”

A major focus now is on businesses that have strong growth potential and that directly relate to one of the unit’s existing business areas, Striebe said.

Xerox similarly has seen its services business grow significantly, to the point where services now account for more than half the company’s revenues.

“For those of you who are interested in pitching to us to acquire companies, don’t focus on the legacy Xerox business, because that’s not where the music’s playing,” Werner said. “When people think we are the old Xerox and they come to us with printing companies and printing distribution companies … occasionally will that be interesting to us? Yes, but 95 percent of the time, probably not.”

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Patrick Gallagher

Bio: Fairfield County Bureau Chief Staff Reporter Westchester County Business Journal Covers: Economy, energy, government, infrastructure and public works projects, law, media, technology Phone: (914) 694-3600, ext. 3017

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