If you are like most business owners, one of the last things on your mind in this economy is planning an acquisition.
After all, it’s hard enough just to maintain sales, collect receivables and keep a lid on costs. But at the risk of adding to your growing list of things to think about, this is precisely the time to take a close look at doing a deal. Here’s why.
First, an acquisition is a proven way to increase market opportunities, customers and sales. In may cases, it will provide an economy of scale that will reduce the cost of each product sold or service provided.
Merger and acquisition transaction volume has been down substantially the past two years. As a result, the cost of a possible acquisition target is lower than it was two years ago for the same company.
At the same time, the private equity community has significant capital to spend and is actively looking for deals in which to invest.
Absent a war in Iraq, signs are pointing toward an economic recovery in Western Pennsylvania. According to published reports, local businesses seem to be ahead of the national average in hiring plans, and financing is available to well-run companies with solid balance sheets. Banks and other lenders are beginning to actively court companies with strong credit histories, and interest rates are at record lows.
If the economy does rebound, it may well lead to a relative explosion in deal activity. When that happens, investment bankers have predicted that valuations will increase, as will the cost of capital.
While good deals are hard to find, it’s worth the effort. The combination of fairly low seller valuation and expectation, with the relatively high availability of inexpensive financing, is just too good to ignore.
Waiting for full economic recovery may be too late, and could end up costing you even more. Richard D. Rose is co-chair of the Mergers and Acquisitions Practice Group of Buchanan Ingersoll. Reach him at (412) 562-8425 or [email protected].
