Business owners who have been considering selling their company may be
thinking twice. A tight credit market
and a displaced economy have left some
wondering what opportunities are available
and if the time to sell has already passed
them by. While it is true that transactions in
today’s climate are faced with new challenges, deals are continuing to get done.
Henry Hissrich, director of new business
development at Harris Williams & Co., talked
to Smart Business about what today’s market means for business owners considering a
sale or acquisition and what they can do to
navigate this environment.
What are the implications of today’s market
to business owners considering a sale or
acquisition?
The middle market, which we define as
transactions less than $1 billion in value, has
historically accounted for at least 90 percent
of all M&A volume. In today’s volatile economic environment, that dominance is even
more pronounced. Mega-deals have fallen by
the wayside because of tight credit markets
and, while middle market transactions have
certainly felt the effects of these challenges,
there is still some activity, particularly for
well-performing companies.
For owners of struggling companies who
are not compelled to sell, now is not the right
time. Working through this period and
demonstrating that the business can weather through all points of a cycle is a strategy
that is likely to reap rewards once the market rebounds. Conversely, there are companies that continue to perform well or reasonably well despite the weak economy.
These are the companies that will be attractive to buyers in any environment and, while
multiples have declined from the peak of
2006 through the first half of 2008, valuations
can still be attractive in historical terms.
What advice can you give business owners
who want to sell but are concerned about
timing?
The decision to sell a business easily ranks
among the most difficult and important of
a business owner’s career. While today’s
environment is difficult, opportunities to gain liquidity or exit are available for well-performing companies.
If you are considering a sale in the near
term, now is certainly a good time to get the
business prepared. Once the market turns
around, there will be a flood of pent-up supply, so it is best to be ready when the right
opportunity arises.
Some business owners have also benefited
from obtaining minority investments from
private equity groups, many of whom are
actively looking to partner with companies
led by strong management teams. These
transactions are less reliant on debt, which,
in today’s market, is expensive and in short
supply. Because there is an abundance of private equity capital that needs to be put to
work, creative deals structures such as
minority investments are becoming more
prevalent. Many companies are exploring
similar alternatives with success.
Are certain industries experiencing more
activity than others?
Absolutely. Certain defensive industries,
such as health care, technology and consumer staples, among others, are proving
their resiliency in the current environment. If industry dynamics are favorable for your
business and it’s performing well, you may be
surprised at the exit opportunities that exist.
What piques buyers’ interests?
Companies that have a unique and tangible
value proposition, effective management
team, strong financial performance and compelling growth characteristics supported by
sustainable competitive advantages will
almost always generate interest from the
buyer community. Now more than ever, businesses need to have a demonstrated track
record and be able to show that they can
weather difficult times.
How can companies prepare for a sale
process?
The sale of a business is impacted by a variety of internal and external factors. It is
important to weigh all of the factors that are
important to you and look to the advice from
an experienced sell side adviser to help determine the right strategy.
Business owners should prepare in a number of ways, from basic housekeeping to having a clear growth plan for the future. Owners
should try to examine their business from the
vantage point of a prospective buyer and
address any potential concerns prior to marketing the company.
For many middle market companies, the
reasons why an owner may opt to sell a business are not limited simply to market timing
and returns. Knowing your objectives and
the steps that need to occur to meet your
goals are key for preparation.
Harris Williams & Co. (www.harriswilliams.com), a member of The PNC
Financial Services Group, Inc., is one of the
largest mergers and acquisitions advisory
firms in the country focused exclusively on
the middle market. Harris Williams & Co.
represents private equity groups as well as
publicly and privately held companies
worldwide. Member FINRA/SIPC.
©2009 The PNC Financial Services
Group, Inc. All rights reserved.
HENRY HISSRICH is director of new business development at Harris Williams & Co. Reach him at [email protected] or
(267) 675-5900.
