I get a lot of questions about how the current business climate is affecting business buying and mergers & acquisitions. If you have been thinking about buying (or even starting a business) I'm sure the same type questions may be on your mind.
Following is an email thread, from a client, who wanted my viewpoint on current business conditions. Perhaps it would be of interest to you as well:
From: 'Rodney B'
Subject: Adducent.tv: Current Climate
This is an enquiry e-mail via http://www.Adducent.TV from: Rodney B
Your site is great! I bought your package.
Can you tell me:
1) With the financial craziness going on now, how has the business buying world been affected and
2) How has the M&A world been affected? Isa it worth my time to start now or shoul I wait?
A better question may be: If today you were advising the son of a close friend, what course would suggest for him?
From: Dennis Lowery
To: 'Rodney B'
Subject: RE: Adducent.tv: Current Climate
Thanks for your previous orders and compliment on my site. I appreciate both.
Answers for your questions:
1) I think that the impact has been twofold, positive and negative - I'll break that down for you -
a. Positive - I think that business owners are much more realistic in their expectations right now about price/value of their business and acceptance of terms requested by buyers. I think that will carry over into the next year or two at least, as things settle down - its very possible that it will last longer than that as our society (hopefully) reigns in some irrational and unrealistic behavior that has caused the mess the markets are in right now. So I see that the turmoil and economic situation is creating a lot of opportunities for smart buyers going forward.
b. Negative - Money is tighter. There is not any "easy" money for bad deals like there has been for the past several years. So if buyers are trying to force a bad or poorly structured deal where they are over-paying or putting too much cash into the deal, not requiring the seller to keep some "skin in the game" etc. ... then money is going to be almost impossible to get. There is money for good, well structured deals that make good business sense, with good management; but it takes putting together a solid deal, ample cash flow to support it. Lenders and funding sources are looking harder at the buyers and being more cautious about asset values. I'm recommending to several clients right now that if their personal financial statements are weak or weakened right now, to consider bringing in financial partners to offset the weakness and help them position to go after buying opportunities. There are good buying opportunities and investors/financial partners out there; they just need to bring the two together.
2) I spoke recently with one of my buyers who has over 20 years of experience and has done deals between $20MM and $176MM. He said (and I agree) that those buyers who have forced bad deals because they could (see my comment about easy money above) are hurting right now and are going to have to "unwind" some of those deals at a loss. That will effectively kill them for 2009. But this actually is a positive - a lot of money (high net worth individuals, institutional investors etc.) headed to the sidelines and have been sitting there for the past few months. Money does not rest for long ... they have to put it to work. One place that is still a comfortable place to put it, where its not subject to the gyrations of the public markets, is in private company acquisitions. Acquisitions done at reasonable valuations and terms that pass proper due diligence. Buyers, like I mention above, are drawing in a lot of money that they will be pushing hard to use in 2009. I spent over an hour on the phone with him going over a gameplan for 2009. This is a man who controls about $300 Million in buying power. I know at least a dozen more with capital resources of $50 million to over $1 billion - each with a similar philosophy that are going to be very active in 2009. So I see working as a finder to bring deals to these types of buyers to be a tremendous opportunity.
3) About advising a friends son: I would advise (and do advise) that they study, learn and begin to apply what they learn about starting or buying businesses. Find mentors to help give feedback and be a sounding board for them. Don't be afraid to try things in business, but do use good judgment and common sense. If you have choices on paths to take, pick the one that makes the most sense to you, that has the largest opportunity to it. That is why I feel that learning how to start or buy your own business is important. I also believe that working as a M&A deal finder can be a perfect business to start and a way to get business experience (with learning from experienced buyers about what they look at when they buy businesses). So that is something I would tell my son's friend to explore and learn more about.
Thanks for the good questions.
Dennis M. Lowery
Adducent.TV ~ Information & Services to help you start, fund or buy a business.
From: 'Rodney B'
Subject: Re: Adducent.tv: Current Climate
Thank You for your response. I really do appreciate it. As a result of reading your responses, I have resolved to immediately "get busy" with my Finder/Acquisition activities.