Cashing In!
Douglas Group
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Using a "Down" Economy
to Advantage
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
longstanding 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.
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.
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Free Audio CD
discusses how to
sell your business for
MAXIMUM PRICE!
Topics include:
Owning a Salable Company
vs. Owning "A Job"
Why & When To Sell
How Competition Increases
Selling Price--Significantly!
The Secret Benefit of the
Intermediary Shield
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knowing what causes value and how great deals are made, you can put
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in your company. Just visit our website at www.douglasgroup.net.
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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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