The Case for Being Pursued—Sell-Side Mergers & Acquisitions

April 28, 2010 at 3:11 pm Leave a comment

There are nearly as many reasons for the owners of a business to sell their business to another entity as there are unique businesses out there. Typically, the reason for considering a sale or a merger relates to harvesting the value of many years of hard work and personal sacrifice. Somewhat related reasons may involve either the unwillingness or the inability to effect management or family succession. Or, in today’s ever more volatile business environment, an owner may want to sell a business prior to the realization of future capital gains tax increases. It is important to understand that it may never be an optimal time to seek a sale if your business or the industry is struggling. As is the case in so many elements of life, “the cream rises to the top” and today’s acquirers are seeking the “cream,” not the spoiled milk.

M&A on the rise

For those business owners who have built and operate a business that is financially, operationally, strategically, and intellectually strong and well positioned for future growth, significant sale opportunities are returning. A continuing need for operating efficiency is driving a new surge in industry consolidation—the big guy wants to get bigger. Buying market share, assets, and resources is still considered an efficient and effective means to an end. Additionally, as a wet and cold winter finally turns into the promise of spring and the warmth of summer, buyers’ bank accounts that were frozen for the past 18 months are opening and significantly higher equity values are giving some an alternative currency to exchange. Related, a plethora of private equity funds of all kinds and sizes are returning to the marketplace and are particularly interested in bringing fresh opportunities into their portfolios. Both corporate and private equity buyers are also benefiting from an increasing availability of debt financing in the marketplace.

In a survey report issued in mid-April, the international corporate communications firm Brunswick Group revealed that more than two thirds of top bankers and lawyers who orchestrate mergers and acquisitions believe that deal-making activity will rise again. That’s a big change from survey results of one year earlier when only 29 percent of respondents forecast signs of recovery within 18 months. According to Steven Lipin, a Brunswick Group senior partner, “This year’s results reveal a substantial change in sentiment in the M&A world and advisers appear to be quite optimistic that the deal activity we’ve seen in the first quarter of 2010 will continue and potentially accelerate during the remainder of 2010.” Further according to a recent article in the Dealbook section of The New York Times, merger volumes for the first quarter of 2010 alone were up more than 18 percent from last year.

Through just the early part of 2010, a wide range of buyers have been closing corporate acquisitions. Closest to home, major technology players GOOGLE, INTEL, ORACLE, CISCO, IBM, SYMANTEC, and SYBASE have been leaders in acquiring much smaller strategic targets at significant premiums. In particular, industry buyers are aggressively pursuing targets that represent new and better ways to meet their respective markets. Typical buyer intent is not just to increase revenues or reduce expenses, but to expand and enhance product offerings to an existing customer base. This represents a great current reward and future growth opportunity for smaller to mid-sized companies that are unique and opportunistic.

Prepare your business for an M&A event

If it is time for you to seek a buyer or a merger partner for your business and the business is strong, growing, and financially stable, it is likely a window of opportunity is currently opening. Of equal relevance, if your business or your industry is struggling, there are important things that you can and should do. We’ve listed below a few areas where business owners and managers of under-performing companies should focus:

• Building management depth and strength;

• Improving financial and IT systems and capabilities;

• Developing sales and marketing muscle;

• Diversifying the customer base;

• Implementing organic growth initiatives;

• Rationalizing operations; and

• Addressing contingent liabilities.

While many business owners have developed a clear and appropriate internal succession plan to assure that a business “remains in the family,” many business owners and investors do expect to participate in an exit strategy that sees their business either acquired from outside or merged into another existing operation. If you and your business are ready for the prospect of a formal merger or acquisition, all indications are that deal making is returning to an active mode. If you and your business are not yet ready for such a prospect, now is the time to bring all elements of the business up to full snuff and be ready when opportunity does knock.

Michael Roy is Director of Mergers & Acquisitions at The Brenner Group where he has focused primarily on middle market advisory and transaction engagements. Prior to his affiliation with The Brenner Group, Mike held posts at firms such as Pacific Marketing Partners, Corporate Finance Associates, and Lehman Brothers. Mike has authored multiple “white papers” relating to the food and beverage industries in the U. S., to commercial real estate acquisition opportunities, and to environmental technology developments. He graduated from the University of Notre Dame and received a Woodrow Wilson fellowship for post-graduate study.

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Entry filed under: Financial Advisory, Restructurings, Shareholder Services.

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