As business owners today read a constant barrage of bad economic news, many are finding themselves worried about whether or not they’ll be able to leave their companies at the time they had originally planned. Owners worry about what such difficult credit markets may mean to potential buyers – and in some cases, they worry even about raw survival, if the downturn holds for long.
The best and the brightest of owners out there today will look for ways to turn those hard times to their benefit. There is an old saying that in every crisis moment for a business, there is the “seed of an equivalent benefit.” The trick is in finding that benefit. There are two such possibilities connected to the merger and acquisition markets of today that owners should be thinking about.
1. Buyers outnumber sellers – With today’s aging demographics, there is an enormous amount of baby-boomer capital in play – seeking solid placement. The equity funds which may have included 50 or 100 real, viable investment groups 20 years ago, have risen to in excess of 2,000 today. When the stock market is most volatile and scary, suddenly the ownership share in a real income-producing, value-growing company, with hard assets and long-standing customers, begins to look like a much “safer” bet for investors.
Our firm sells privately held businesses. As recently as 10 years ago, very few of those deals were ever won by the “equity fund” buyer. Today, over half of the successful business sales go to equity groups. Equity groups today are credible, strong, aggressive buyers, who have earned their stripes. These companies pay competitive multiples for the businesses they buy, and it creates an entirely new dimension to the selling process.
If you are one of those fortunate few companies still holding your own, in sales and profitability, even in today’s rough economy, the opportunities can be tremendous for sale! Competition to buy those companies that have managed to remain fairly steady today, is enormous. The future for many of those companies looks even greater today, because the weaker, less effective among the competition will fail – thus leaving survivors even stronger for the next phase.
Additionally, companies facing real threat of failure in these pressured times, may also take advantage of such competitive buyer markets. It’s true that if you aren’t performing well, pricing for you is never going to compare to the pricing for those companies which are providing 20% pretax income on a growing sales volume. However, if your asset base is strong, and/or if your sales volume is fairly high, there will be buyers who believe they can “fix” your company, and those buyers will compete in acquisition pricing to win a chance to do that.
2. Troubled competitors may offer great acquisition opportunities – When the economy slumps, companies that were making only a modest profit can very quickly slide into crisis. As they face fear of failure and increasing needs for capital to remain afloat, they may suddenly become much more receptive to new possibilities of business combination. If a prospective buyer has a strong sense of what may be amiss for the competitor, and (even more importantly) if they may know how to correct the problem, the dynamics of a combination can truly become the 1+1=3 advantage.
A combination of two “adjacent” competitors can offer tremendous potential for building. Customers of one may feed the other access to new markets. Products or services new to one of the new partners, may offer potential for expansion to customers across both companies. The net result from such a combination can be a much faster path to growth and market dominance, than could ever have been achieved through just normal internal growth.
There are real risks to any acquisition, and just ratcheting up top line sales is not enough to secure real growth in value. However, if owners are aggressive and supportive of growth in the right directions, the upward curve can be accelerated VERY dramatically by acquisitions, and such opportunities are significantly greater it times of stress to an industry.
If either of these strategies has appeal to you, call us, and we’ll be happy to do an analysis for you of opportunity today in your specific industry. We love to sell strong companies, and we will provide a free salability analysis to any company who meets our target salability parameters. Additionally, if we can help owners to do business-building acquisitions for solidification of their futures, we are confident that the relationships we form will put us at the top of the list for the future, when the new, budding, growing company may want to consider “cashing in”.
Create the “seed of an equivalent benefit” by moving with the economy today! If we can help you, we will.