“Business was so bad the other night the orchestra was playing ‘Tea for One.'” — Henny Youngman
You’ve talked to your peers and checked your numbers. Business is off, way off. And although your first instinct might be the “Animal House” response to bad news — road trip — I propose an alternative. Think “Let’s make a deal” instead.
No one is offering neatly packaged, profit-soaring targets. But make no mistake, now is the time for the wise manager to reap his or her just rewards. For the very capable businesspeople with whom I’ve been lucky enough to work over the years, the analysis always begins with, “Why.” Why are our numbers down? What are we missing? What will customers want in the long and short term — and why?
This is not only an executive analysis. To be successful, it must involve the employees who are directly affected. There are a lot of smart people in big and small organizations who have valuable data which no one ever asks them to share. Ask them. Then ask your management team, even if it’s only you, “Who has what our customers want, and how do we get it?”
When it comes to a deal, a down economy offers many benefits for an acquisition that good times don’t: low financing, available personnel, motivated sellers and no rules.
Low financing costs
Interest rates are at levels most executives have never seen. There are plenty of lending dollars, but first identify who wants to conduct business and who wants to waste your time.
An added benefit of these times is that a seller will not be shocked by a proposal that he or she hold some paper. (Remember how those suggestions were treated in the recent past?) If the seller won’t share in the risk and accept your paper, seek a corresponding reduction in the purchase price.
Available personnel
Only a year ago, you could not hire a qualified employee, even with top dollars. Now you can, and at a reasonable price.
A lot of remarkably talented, experienced people are coming on the market. This is a rare opportunity to add a major resource (whether management or skilled labor) to your company, and should be a priority. Opportunity is always lost if your company lacks the skills to seize it.
Motivated sellers
The greatest agony of any deal is when the seller demands an extraordinarily high and unrealistic price knows he or she can get away with it. In today’s climate, that’s not necessarily the case.
Today a sale may be motivated by a bank concerned projections are off. It may be pushed by a venture capitalist eager to harvest the investment’s growth before it fizzles and motivate new investments.
And that’s not the only motivation. When the going is tough, hard times affect people’s enthusiasm. In this business climate, many abandon new initiatives.
A deal you would never have imagined could be possible. In many cases, for financial, psychological or other reasons, a seller must sell. Moreover, instead of being perceived as Attila the Hun, the buyer becomes a savior of the business.
No rules
The most important and most enjoyable aspect of deal-making in a down economy is that no one has a right to expect a standard deal. Be creative. Two years ago, you had to take the good with the bad, but this is a very different day.
Fortunes are made by getting the timing right. The decisions and actions today will produce fortunes five years from now. Good deals are made by the hard work of due diligence and the courage to pull the trigger.
Bob Tomaro is an attorney at Arter & Hadden LLP and a member of the firm’s E-Group, where he focuses his practice on transactions. The E-Group is a multidisciplinary team of attorneys who work together to better serve entrepreneurs, Internet, e-commerce and emerging growth companies. Tomaro can be reached at (216) 696-4087 or [email protected] for questions regarding a technology use policy appropriate for your business.
