Cashing In!
Douglas Group
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Good News for Sellers,
Despite Bouncing Stock Market
At
Douglas Group, we have had an enormous number of inquiries lately about
what impact the recent crazy ride in international stock
market volatility is having on buy/sell or merger/acquisition
activities. Actually, there is both good news and bad.
The
bad news is that for the publicly traded corporate buyer, there's a bit
of insecurity right now for the large acquisition transaction. It
is increasingly difficult for the large industrial entity to predict
what its cost of capital, or access to debt will be, in these volatile
times. For the contemplated "stretch" acquisition - one that is
fairly major relative to
the size of the acquirer - such acquisition activities may appear too
risky. No one likes to incur the hundreds of thousands of dollars
required to complete due diligence on a large transaction, with the
risk that underlying debt financing may collapse at the last minute, or
that a public market may perceive them as taking excessive risks to
acquire at a high price, in these turbulent times.
The
bad news, however, probably doesn't apply if the acquired entity is far
smaller than the buyer. In that instance, outside debt is really
not a stumbling block, due to the relatively minor size. And the
likely PR "spin" can be very positive as a sign of continued strength
and forward momentum.
Generally
there is also good news in the impact that such market volatility may
have regarding desirability of direct middle market operating company
investments. There remains a truly vast amount of baby-boomer
capital out there, seeking safe but growing venues for
investment. Many buyers in this cycle of wild market volatility
actually feel even safer investing in a real operating company today,
than they would in public markets.
Equity funds continue to thrive and to have significant capital to invest. They are actually more competitive than ever in pricing to win deals. This is not to say, however, that they are not affected by the availability of credit to finance transactions, and to finance subsequent growth needs. Credit is accessible, but debt-to-equity relationships are being carefully watched,
and such scrutiny puts a healthy counter-constraint on marketplace
competition for pricing. The good news for sellers, however, is
that such buyers are plentiful, and multiple contenders encourage strong competitive markets.
Also,
the business world continues to become ever more international.
Buyers today invariably come from all over the world. Actually,
the under-valued dollar of recent times has allowed international
contenders to pay more than they could have years ago. Plus, as
world economies develop in other nations, some of the expertise that
has been long-established in the US, is becoming increasingly desirable
for sales of both consumer and industrial product abroad. (For
example, we recently have had LOTS of international buyers seeking U.S.
automotive aftermarket producers. China has 10 times the number
of cars they had a decade ago. Markets in remote corners of the world
have now taken to trucks and to SUV's. U.S. manufacturers KNOW
how to serve those markets!)
There
is no single answer that fits for all would-be sellers in these
tumultuous times. However, if you are one of those fortunate middle
market business owners who continues to hold up steadily in the face of
today's rocky economic environment, you may be especially desirable
today. This could be the moment when you show up conspicuously as
a very special and a very safe investment for the future. In
today's marketplace, continuing strength becomes especially "hot", and
may offer that once-in-a-decade chance for especially great potential.
Written by Deborah
Douglas, 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). For more information, contact her at ddouglas@douglasgroup.net or call 314-991-5150.
Click here to read more articles on buying/selling a business
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discusses how to
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Topics include:
Owning a Salable Company
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Why & When To Sell
How Competition Increases
Selling Price--Significantly!
The Secret Benefit of the
Intermediary Shield
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We've
created this newsletter to share timely and relevant industry expertise
on buying and selling businesses. Here we share stories,
anecdotes, and expertise in the world of business sales; also known as
mergers and acquisitions. We can also provide other educational
resources such as webinars, audio CDs, industry books, and
consultations. We're always eager for and appreciative of any
suggestions or feedback you may have. Thanks for reading.
We would enjoy hearing from you.
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