Doing Good Deals in a Bad Year

Where have all the good deals gone, long time passing? They have turned to dust, every one. When will we ever learn. Well, wait a minute. Not all M&A transactions are turned to dust. It is possible to get good deals done in a bad year. You may be wondering, How?

First, let's consider the painful facts. The Financial Times recently reported that M&A activity has hit a five-year low. Chief executives of corporations remain cautious about launching deals. At the same time, non-financial groups have raised almost $887 billion in the bond markets in the first half of the year, which is 64% more than the same period last year when they raised $540.3 billion, according to data from Deal Logic. This capital, however, did not translate into higher levels of M&A activity, which totaled just $1.1 billion, the lowest semi-annual volume since the first half of 2004. Private equity groups, which have been major buyers in previous years, recorded their lowest half-year volume since 1997.

Simply stated, M&A activity is in the dumpster and neither strategic nor financial buyers have been acquiring companies at anywhere near the rate seen in recent years. This distressing retreat of M&A activity has resulted in significant cut backs and lay offs from Wall Street to Main Street in the deal-making industry. From investment bankers to brokers of businesses ― all are suffering through one of the worst economic climates in American history.

What most business owners don't realize, though, is they should begin preparing now to be ready for a future sale. Selling a business is a process; it's not like selling a car or a house. In order to drive maximum value in a sale it's important to present a positive and attractive picture to the potential buyer. This takes preparation.

Smart owners use down times to their advantage, getting their business ready for sale while waiting for better economic times. When the economy revives and the owner's business sales start to build back up, that is the time to strike. If you are considering a transaction, you always want to sell when your sales are increasing and business is moving up.

Too many business owners who are interested in selling simply wait too long. Nobody thinks about selling when their business is operating successfully and they are making good money. A common mistake owners make is to ride the good times to the end and then start looking for a transaction. By the time the business is being marketed sales are slipping. Then, by the time an interested buyer surfaces sales are in the tank. Invariably, this hurts negotiations and negatively affects the sales price. Or worse, it may become very difficult to attract a buyer at all until sales improve again.

"The time to sell is when business is flourishing," says David Mahmood, chairman and founder of Allegiance Capital Corporation. "Timing is the key. How can you sell during a boom time if you didn't prepare ahead of sales spikes?"

As an example, Mahmood said recently that owners of businesses that he had for sale, when business was very good, rejected significant offers to be bought out. Now these same owners are calling him to see if those deals can be revived. He specifically referred to calls he received last week from companies in Alberta, Canada that he had brought offers to.

"When oil was $147 a barrel and the Alberta Tar Sands were booming," Mahmood said, "the owners rejected every buyout offer I brought them, no matter how good the offer was. Today with their business down 80%, they severely regret not having taken the opportunities that were presented to them."

The time to act is now ― during a time when M&A deals are fewer and farther between. For one, you'll attract the attention of a good intermediary who is eager to help you prepare. Then, when the economy takes even a small turn and your sales jump up, you will be positioned to move swiftly and get a deal done. You deserve to get the most for your business.

Strategist, author, marketer, and investment banker, Brent Earles has published over 250 articles and 15 books to a wide range of audiences. Brent has provided strategy, marketing and branding services to such great brands as 3M, H&R Block, Allstate, Sprint and Pizza Hut. Currently, he is vice president of corporate development for Allegiance Capital Corporation in Dallas. For more information, refer to the company website at www.allcapcorp.com.