Acquisitions: Better Process = Better Prospects
Better Prospects = Better Transactions
These are chaotic times for business valuation. The old rules are changing to reflect the dramatic new reality of the markets. Companies that were hanging on won’t make it much longer, and companies that need to sell will not receive the pricing they would have eighteen months ago. Equity buyers call it the “catch a falling knife” metaphor. Business valuation has always been more of a black art than a science.
Corporate buyers with access to cash receive far better returns on their acquisition dollars during recessions. Troubled deals that would be done in good times are being liquidated, mundane companies are finding it hard to get a fair multiple, and cash is at a premium.
All this points to acquisition as a growth strategy.
Those that discipline their acquisition process will improve their return on investment.
Advisors can help their clients to:
* assemble a smart team that will include the talent they need. It may include other outside advisors.
* determine precisely what fits (challenging assumptions) and create a weighted averages criteria model that measures candidates and allows comparison in ranked order.
* Create a plan for building and contacting a large number of specifically chosen candidates with a well crafted contact letter,
* Build a system for compiling and managing large quantities of information from the many companies that will be reviewed over the coming months,
* Plan for audits (financial and non financial), due diligence, integration, transition, and monitoring of all aspects of the transaction.
And most important, to see that having the tools, systems, and protocols in place to discover and research the best candidates, manage the information, put the right people and procedures in place in a timely fashion (acquisitions are time sensitive) makes all the difference in the world.
2009 will be a terrific year for a disciplined approach to strategic acquisition, Multiples are low, opportunities are stacking up, cash is hard to find and owner financing will be abundant.
Note: The failure rate for an undisciplined approach to acquisition still exceeds fifty percent. It pays to do your homework.