1. Locate a strategic buyer for your firm. A strategic acquirer will be interested in obtaining your market niche to get the full synergistic benefits of the consolidation of the two companies. They will be interested in the intermediate and long-term benefits from the acquisition. As the short-term earnings and outlook should not be of paramount importance to them, they are less likely to allow current economic conditions to be the justification for a substandard offer.
Foreign strategic acquirers are now accessible candidates to acquire your company. If you are advised by a sophisticated acquisition advisory firm that is knowledgeable in fully utilizing the capabilities of the Internet in the search process, a vast array of foreign candidates becomes available to acquire your company. As business tended to become increasingly globalized during the late 1990s, the acquisition of domestic companies by foreign acquirers became a realistic possibility for selling middle market owners. However, not many acquisition advisory firms want to expend the time or effort, nor do they have the expertise to master the resources available on the Internet.
2. There has been a vast consolidation in many industries. With the rapid consolidation that has taken place in many industries, the number of domestic acquirers has been greatly reduced. In some of these industries, this has made the major national acquirers brazenly aggressive in demanding substandard pricing for deals. In these industries, a seller must remain patient and be tough. They must wait until one acquirer breaks from the pack and pays a fair price. This mandates they retain an acquisition advisory firm that is extremely strong-willed and determined, and only sells when a realistic, premium price has been obtained.
3. Absence of upside volatility in middle market deals. The pricing of middle market deals never increases dramatically during good economic times or buoyant stock market conditions. During these conditions, the increase in middle market deal pricing is extremely muted compared to large corporate deals. Correspondingly, a middle market seller never gets the benefit of a market top. Therefore, they should never accept a reduced price during bad economic conditions.
4. Impact of reduced earnings during poor economic conditions. During prolonged good economic times, many acquirers want to discount the value of recent earnings by those that will be realized during bad economic times. After an economic downturn or recession ends, these same acquirers want to price a middle market company solely on the earnings realized during bad economic times. Don't let this happen when the current economic decline ends. The concept to remember is that middle market deal pricing is dictated not by historical earnings, but by expected future earnings and the risk in achieving those earnings from the business foundation given an acquirer. This, in fact, is the value of your business niche and should govern deal pricing during any economic condition.
5. A large acquirer should not be allowed to take advantage of bad economic conditions to justify a substandard transaction price. Insist that your company be priced at a value that reflects the strength of your business foundation. Your niche is what a strategic acquirer really wants. It dictates the future earnings potential that can be realized from the acquisition. Correspondingly, it should determine the transaction price. This is what a proud, strong-willed, independent seller will demand from an acquirer, and nothing less.
(George Spilka and Associates Merger & Acquisition Consultants can be contacted at Suite 301, 4284 Route 8, Allison Park, Pa. 15101; 412-486-8189; fax 412-486-3697; www.georgespilka.com; e-mail: spilka@ stargate.net.)