InSight

Exit and Growth Strategies for Middle Market Businesses

Adapt or Die – Build a Plan

By George Walden | Oct 04, 2016

Two weeks ago I was at the 45th annual Turbomachinery and 32nd Pump Symposium underwritten by the Turbomachinery Lab from Texas A&M supporting my investment banking business partner Matt Register and Texas Business Radio. I found myself fascinated by the tone of the room. It was like two different types of exhibitors were exhibiting at the same event. There were companies doing well, excited about the prospects of the future. Then there were those companies that were experiencing a significant slowdown in their orders and they were very concerned about their viability in the marketplace. In a video I posted on Vimeo, I explain about “Adapt or Die.”  Click on the play button below to see the entire video.

As everyone in the energy sector knows, explorations and many of the ancillary services tied to exploration have slowed down in Texas. What has started as just a regular cycle of slowdown has become more extended and while I heard a lot last year that 2016 will be a better year, now I hear 2018 will begin the recovery of the drilling cycle. You could probably flip a coin on 2018 and be just as right in a prediction. So why are some companies excited about their growth prospects and others worried that the orders aren’t going to arrive soon enough?

I came to the conclusion those who were doing well had developed niches and expertise in other sectors. While drilling has slowed, petrochemical, agriculture, construction, transportation, water remediation, medical and many other industries have been accelerating.

Some companies are just too one dimensional. During a downturn you have two choices. You can fight with everyone for what few orders that are available or develop other markets and expand your capabilities. Said another way, find someone who needs your service or device.

Recently we received a call about a water separation manufacturing company tied primarily to the drilling sector. In the drilling industry these systems are used for many well side applications to remove water and other impurities. Waiting for orders that just never came, the company rode the market decline straight into bankruptcy and is shutting its doors. Early in their fall, I can’t help but believe that if they had received the correct advisory advice and moved into other sectors, then made the required reductions while they still had capital, they could have survived. Separators are used in a large number of industries from agriculture, mining, paper to water treatment. Perhaps the orders would not have been as large or the margins as substantial as the energy industry, especially in a rising tide environment, but business survival is way too important to ride into the ground.

Even Merger & Acquisition advisors experience downturns. In 2009, many M&A advisors did poorly for the year. When talking to the firms that did well I discovered a common theme for the poor performers.

The poor performers continued to represent companies that were in the middle of the lowering tide watching their value fall, rather than pivoting to companies that weren’t being affected by the recession. Valuations were being crushed due to the poorer earnings cycle and the lack of finance availability. Advisors that made the early call, who told their sellers that were in decline, “Now is not the time to sell your business, let’s revisit and go to market when your business picks back up,” those M&A advisors performed better. Investment Bankers and M&A advisors that performed well went out and generated clients based on the new norm of lower expectations or they developed business in areas of the market that weren’t being affected negatively at the time.

You can bet this last downturn we were quick to advise our drilling sector clients that this is not the time to consider selling unless your expectations are reduced or your needs require a change. In fact, our recommendation today for clients like that is “now” is the time to put in the systems and infrastructure to take advantage of the next upturn. Perhaps you should even consider buying some of your weakened competitors.

The ability to adapt is a feature not a flaw. Too many companies do the same old same old rather then put the effort in to adapt or change. If orders are slow, don’t blame the market. If you are struggling, get advice from those who know how to build and implement a plan. Even a poor plan strongly implemented has a better chance of success then doing nothing.

As unique as we all think we are in business, we are not.” All businesses will face a changing environment, ups, downs, and strife. All companies have strengths and weaknesses. This is not a unique problem. Seek the advice of others. Get their input and develop a plan. Then implement your plan with conviction.

Posted by George Walden.


One Response to “Adapt or Die – Build a Plan”

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