Exit and Growth Strategies for Middle Market Businesses

Growing Through Acquisitions in Harsh Economic Times

By Joe Contaldo | Mar 03, 2009

In these times of unprecedented economic turmoil, an opportunity exists for small businesses to utilize the current financial “perfect storm” to grow through strategic acquisitions.

With changes in the economic climate and the halt in highly leveraged lending, companies that were patient during the M&A boom are now poised to make strategic acquisitions that can strengthen current operations, increase market share, decrease customer concentration, add new product lines and position them for significant future growth — all without the heightened competition experienced over the last five years.

Less competition from financial buyers: The window has closed for the highly leveraged transactions popular with Private Equity Firms during the M&A boom of the last few years. With these financial firms reassessing their approach and struggling to raise debt, it removes them from the market and/or diminishes their buying power.

Healthy companies have a better balance sheet and better banking relationships: Quite simply, companies that were patient will be rewarded for keeping cash high and debt low. Banks, some that are frozen to new lending, look for ways to cultivate existing relationships with healthy customers.

Opportunities to buy or merge with competitors: Companies facing mounting debt, loss of a key customer or other financial or operational “hiccups” need equity and/or a strong partner. Companies that did not move fast enough to fix these problems can be acquired at attractive valuations, or in some cases, 363 sales and/or through a bank workout.

Current economic climate has paved the way for creative deal structures: The market is realizing the need for creative ways to successfully complete a transaction. Seller financing, earn-out structures and other vehicles for contingent payments tied to future performance are key to getting deals done in a market with restricted credit.

Acquisitions always have risk attached and in a slumping economy the risk is greater. However, by continuing to be patient, keeping within your comfort level, and hiring an experienced M&A advisor, attorney and accounting firm, a well planned acquisition can take your business to the next level and generate growth for years to come.

4 Responses to “Growing Through Acquisitions in Harsh Economic Times”

  1. Brandt Ross says:

    Great message Joe! You are so right. This is a perfect time for strategic buyers to acquire market share, geographical expansion or product extension.

  2. Peter Moore says:


    Timely message and great PR exposure for you!


  3. Making Order Out of Chaos,

    Better Prospecting = Better Deals

    Aggressive second generation owners determined to grow by acquisition. A five member internal team that includes two mid thirties family members is chosen to tackle the project.

    The search begins by calling brokers to bring deals which they sort through with a set of criteria that they have determined to be right for the business. Quickly they have data to sift through on forty or fifty candidates and poor tools for comparison or valuation based on their corporate criteria.

    The data becomes overwhelming and not much help in decision making. Much time is spent traveling and investigating. Team members don’t agree and have no way to accurately compare candidates or make a decision on what should be done.

    If a decision to move ahead is made under these circumstances, the 80/20 rule may well apply: 80% of acquisitions don’t add value. Over 50% of acquisitions destroy value.

    If the transaction is finalized, it is still critical that audits (financial and non financial) due diligence and integration be handled professionally. With a corporate team missing significant parts of the acquisition puzzle, it is not hard to understand how companies fail at acquisition.

    A Better Way:

    Aggressive second generation owners determined to grow by acquisition using best practices.

    They begin by building a smart team that includes the talents they know they will need. It may include outside advisors.

    Next they determine precisely what fits (challenging assumptions) and create a weighted averages criteria model that measures candidates and allows comparison in ranked order. Then they,

    * Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter,

    * Build a system for compiling and managing large quantities of information from the many companies that will be reviewed over the coming months,

    * Plan for audits (financial and non financial), due diligence, integration, transition, and monitoring of all aspects of the transaction.

    Having the tools, systems, and protocols in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) makes all the difference in the world.

  4. Joel Lesser says:

    Very good points. However, buyers should be very cautious to ensure the target company fits the strategic goals and there is a strong integration team. If you can’t make it work in a spreadsheet, it certainly won’t meet management’s expectations when you go-live.

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