In good times, you make money. In tough times, you can build fortunes. For many these are tough times and the mergers and acquisitions market is doing things I’ve never seen before. I tell people we are in interesting times.
On the buy-side, deals are to be had. Buyer interest is strong, and we’re picking up more buy-side engagements than in previous years. It does not come without hard work and resources. Cash is king. These buyers are getting some good, sound companies at reasonable prices. Remember what Warren Buffet has said, “I’d rather buy a wonderful company for a fair price than a fair company for a wonderful price.” And with the economy slow, they’ll have time to reorganize and achieve synergies. When times get good again, it’s going to be “game on” for these proactive businesses.
As we work for our buy-side clients, looking to grow through acquisition, we are amazed at how many very successful business owners are responding in a reactionary mode and allowing themselves to get into one-to-one negotiations with our clients. This allows the buyer to have the leverage in the deal.
That said there are still things happening for sellers who go to market with the right team. In some industries we are able to get very good prices, some companies having numerous buyers submitting interest. In other industries it is tougher to find a buyer willing to make a move in today’s market.
Sellers should also consider other future unknowns including possible changes in the capital gains tax or a shift in supply and demand. Once the economy turns around, we expect to see a rush of sellers go to market. That’s good for us here at Cornerstone, but bad for the average company that isn’t going to get the same attention it could in this market.
Financing may be tight, but plenty of investors still have resources at their disposal. Private equity groups are one example. Most such groups operate on a 10-year cycle. They invest and develop for the first five years and then grow and sell during the second five. Many are nearing the end of their first five-year cycle and are, therefore, aggressively looking at opportunities. They can’t achieve 25% return to their investors by keeping the money on the sidelines.
We launched one company in January that’s gotten far more attention than we’d expect even in a healthy economy. Management has already met with 12 well-qualified entities and we have received several letters of intent, some even above academic fair value.
If you are curious about your industry and what it is doing talk to an intermediary today. You may be surprised. Again, these are interesting times.
Scott Bushkie is President of Cornerstone Business Services, a low-to-middle-market M&A firm. Reach him at 888-608-9138 or [email protected]