Growing Through Acquisitions in Harsh Economic Times

Growing Through Acquisitions in Harsh Economic Times

By Joe Contaldo

March 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.