Cashing In!
Douglas Group
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"Crash-Proof" Your
Company
Through Merger or Acquisition
The merger and
acquisition environment in the U.S. today is strong for sellers, with
some serious "good news" for business owners seeking to shore up equity
structures. The aggressive and very acquisitive buyer markets are
creating substantial opportunity for middle market business owners to
"cash in" on some or all of their ownership interest. Also, with today's volatile
and somewhat uncertain economy, the opportunity to reduce the risk of
ownership and to potentially strengthen staying power with strong new
equity, becomes even more attractive to owners as "insurance" for the
long-term survival and prosperity of their middle market
companies. There are several critical key factors that are
particularly pertinent to assessment of today's environment for the
middle market company. In other words,
7 Reasons Why Today's Economy is Good News
for Business Owners
Global Economy -
The breadth and depth of worldwide international business markets has
truly reached an all-time high, in terms of enterprise connectivity and
public worldwide "reach" of evolving products. Nearly every U.S.
enterprise today is facing new levels of competition from offshore,
often low-cost labor competitors. Buyers and distributors of
product are reaching literally around the world to find the best and
most competitive products. Large international power-houses seek
entry to the U.S. through multiple channels, and acquisition of U.S.
companies with today's dollar trade levels can became a very affordable
option for the world buyer - as well as a secure underpinning for the
U.S. company.
Tax Rates
- Capital gains tax rates for U.S. sellers are at an all-time
low. They may literally never be better than today. Recent
discussions with Barack Obama mention a probable increase of the
federal capital gains rate from 15% to at least 25% within a year of
the upcoming election. Even Republican candidates will face
intense pressure for increased capital gains rates, with increasing
deficits and shrinking U.S. tax base. The net result is a capital
gains tax rate more favorable today than is ever likely to recur in our
lifetimes.
Bigger is Better
- Consolidation continues, worldwide, in almost every industry,
especially manufacturing. Bigger companies can be more profitable
and can consistently spread overhead spending over wider sales.
The result is increased pressure on the mid-sized manufacturer, and
increased security and reward for raw increases in gross size.
Bigger is better in today's world markets - and it shows in every
industry.
Private Equity Funds
- Private equity funds have become far more aggressive in their pricing
of acquisitions over recent years. A decade ago, equity funds
could rarely "compete" with the like-kind strategic buyer.
Today they can - and they do, consistently. The count of private
equity funds has also increased dramatically, with ten times the number
of active funds today as there were only ten years ago. Today,
literally half of the winning corporate buyers of mid-sized companies
are coming from this powerful and growing force.
Power Capital
- More sophisticated and better capitalized owners can bring staying
power to the U.S. company to survive and remain healthy, even through a
soft economy. Additionally, larger and more connected ownership
can grant a company access to international supply sources and to
worldwide sales and distribution networks. (International
connections like these can be hard to come by, and costly for the
mid-sized manufacturer to do on his own.) Size and equity add
solidity and staying power to the enterprise.
Stock Market Volatility -
The volatility of the stock markets in recent times has made individual
stock market investments scary for the retired U.S. investor seeking to
protect corpus. One popular alternative today lies in private
equity fund ownership of middle market companies. Middle market
investments, managed by astute and diverse equity fund drivers, can
actually feel much more solid and stable than publicly traded
investments, which are subject to faster market swings (propping up or
knocking down values all too quickly.)
Weak dollar
- Dollars are cheaper for international players today. As a
result they can sometimes pay disproportionately high prices in today's
acquisition markets. This means potential bargains for the
international buyer - and potential "home run" deals for the U.S.
seller.
Conclusion
- For business owners of middle market companies in the U.S. today, the
above factors are good news. It's nice to know that equity
is out there, is moving, and is available, so the options for potential
cash-in on a lifetime of hard work aren't bad in 2008.
Deborah
Douglas is the Managing Director of the Douglas Group, a St.
Louis-based private investment banking firm which represents sellers of
middle-market companies. Ms. Douglas is also author of "Cashing In,"
(2004), and author of "Smart Business Owners Finish Rich," due for
release in Spring 2009. For more information, contact her at ddouglas@douglasgroup.net or call 314-991-5150.
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