Timing is everything

Buying or selling a business is a complicated undertaking and one that should not be approached without the assistance of a firm experienced in these types of transactions. In this time of economic uncertainty, there are many opportunities for growth through acquisition and merger.

At a recent COSBE (Council of Small Business Executives) group meeting, two of our members discussed current and possible acquisitions that would strengthen their firms. One of the acquisitions has already been completed and took almost a year to bring to conclusion. The other is actively being pursued. In many ways, the timing is right for the purchase of this existing business.

The motivations for the sale of an existing business vary, from loss of share in a consolidating market, nearing the top of a business cycle, finding cash flow tight and even the current owner just being burned out and/or wanting to pursue other interests. Sometimes business owners pass the business on to a family member or sell to management, but most of the time, they sell to a third party and/or bring in private equity.

On the other side of a transaction, there are many reasons why a buyer would be motivated to acquire an existing business in this down economy, even though the natural inclination could be to pull in your horns and ride out the storm.

Some will look for acquisition opportunities at attractive prices that will help them grow and create future value. Those that acquire, and do so smartly, can end up way ahead. Acquisitions can open up new markets for existing products, increase market share, add complementary products and provide cost savings through consolidation, among other things.

As stated by Doug Marconnet of Mertz Associates Inc. at an M&A seminar in October, “To be successful buying and selling businesses, you have to become a master at timing.” So, if you are thinking of buying an existing business, Marconnet suggests several things. They are as follows:

  • Are you financially strong with plenty of access to capital? If so, you have a real opportunity during these times. Think hard as to whether or not you want to take advantage of it.
  • Do you have a well-thought-out strategic plan? How would acquisitions help you accomplish those plans?
  • Do you have/can you get the skill base to create meaningful strategic deal flow? Can you put together an internal acquisition team that can sell the value of your company as an acquirer?
  • When evaluating potential acquisitions, be sure they fit the primary objectives of your core strategy. If they don’t, then pass.
  • Don’t reject a potential acquisition simply because of a few non-critical warts. You’ll never find a business without any issues.
  • Be sure to do thorough non-financial, non-legal due diligence, and create a transition plan that can achieve the goals you envisioned for your acquisitions.
  • If you are more of a seller, you should prepare your firm for a sale. Mertz Associates suggests a number of steps that the seller and their advisors should take. They are as follows:
  • If you are concerned about capital and/or burned out, make sure you assess your situation accurately. Most hunker down for too long and look to sell once it is too late.
  • Seriously consider involving your management team in the process. The more buyers see a deep, experienced management team, the more comfortable they typically are with the acquisition.
  • Have your documentation in proper order: financials, operations, facilities, infrastructure and personnel, in order to give buyers confidence in the business.
  • Help your advisors develop compelling offering materials that demonstrate your sustainable competitive advantages and leverage the current market buyer motivations.
  • Create value in the process of selling. Your advisor team should recommend a marketing approach that will create opportunities and manage risk.
  • Market to the right buyers, making the initial contact in a professional and credible way.

Marconnet, in his comments, made a number of additional recommendations about finding the right match between buyer and seller. From either perspective, being sure you’ve properly evaluated the field of potential partners is critical. This is especially true for acquisitions.

In this time of economic instability, there are clearly still opportunities for both the buyer and seller. This is a time of great opportunities if you take purposeful steps toward your end game.

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