| Equity values of public companies across the board | | | | Hurewitz goes on to say that sales should not be cut |
| have plummeted; a new administration is upon us, | | | | if a dedicated selling effort is required to grow or |
| and the liquidity of the US and major global financial | | | | maintain revenue. However, many companies cut |
| markets is problematic at best. But what's happening | | | | both as a way to save costs without a critical look |
| on Main Street? Is it a good time to acquire? Should | | | | at how this fits their long term strategies. |
| business wait to see what happens, or is this a good | | | | Ratcheting up sales and marketing efforts in a down |
| time to implement an organic growth plan? | | | | economy runs counter to what many companies' |
| Today's overall financial market conditions clearly | | | | senior managements feel forced to do to preserve |
| have reduced some valuations among middle market | | | | cash. However, there are many reasons not to cut, |
| companies seeking acquirers (although not | | | | but rather redouble these efforts in market |
| dramatically - on average, perhaps 10% - 20% off | | | | downturn. If companies have done their research; |
| their highs of two years ago). Certainly, some values | | | | find that they can compete effectively; that sales |
| have been less impacted by this economy than | | | | are to be had, and they have capital to increase sales |
| others. Many, perhaps most of these companies are | | | | and/or marketing - doing so while many of their |
| otherwise quite sound. In this respect, they may | | | | competitors retreat, may prove an excellent strategy |
| present excellent opportunities for would-be acquirers | | | | in a bad economy. Plus, you may find you can |
| seeking to augment their own organic growth | | | | negotiate much more aggressively with your |
| through the acquisition of one or more firms that fit | | | | advertising vendors. |
| the acquirers' near- and long-term corporate | | | | Two studies to note: |
| strategies. | | | | McGraw-Hill Research analyzed 600 companies |
| Industries experiencing depressed valuations today | | | | covering 16 different SIC industries from 1980 |
| offer excellent opportunities for well-prepared, | | | | through 1985. The results showed that |
| well-positioned acquirers to buy competitors or | | | | business-to-business firms that maintained or |
| complete vertical acquisitions at more favorable | | | | increased their advertising expenditures during the |
| multiples than in recent years. The market also is | | | | 1981-1982 recession averaged significantly higher sales |
| favoring prospective buyers with more favorable | | | | growth. By 1985, sales of companies that were |
| terms and conditions. One critical caveat: cash once | | | | aggressive recession advertisers had risen 256% |
| again is king, as it has become significantly more | | | | over those that didn't keep up their advertising! |
| difficult to execute leveraged transactions. However, | | | | In an analysis of the 1990-91 recession, Penton |
| earnouts and other forms of deferred compensation | | | | Research Services and Coopers & Lybrand, in |
| have become the norm in today's M&A | | | | conjunction with Business Science International, found |
| landscape and can be expected for sellers to garner | | | | that cuts in advertising during a recession decrease |
| full credit for future value of cash-flows and contract | | | | net income over the long haul. Companies that |
| backlog as buyers remain skittish about what may | | | | maintained advertising during the recession enjoyed |
| loom around the corner. When structured correctly, | | | | measurably higher net income gains not only during |
| earnouts or seller notes benefit both buyer and seller | | | | the recession, but even more so two years after the |
| with an option that can bridge the gap of higher seller | | | | recession, taking business away from their |
| valuation expectations and a reduction of risk for the | | | | competitors in the process. |
| buyer. | | | | Another strategy to achieve growth is by acquiring |
| Companies wishing to acquire another business should | | | | sales talent. With many companies initiating hiring |
| always conduct a strategic study on how synergies | | | | freezes or cutting back, the available talent pool has |
| or market growth will be gained. Given near-term | | | | grown considerably in most industries. This has given |
| market uncertainties, taking a little more time for this | | | | employers better opportunities to hire highly qualified |
| analysis to ensure targets are suitable and the timing | | | | candidates who can hit the ground running. Good |
| is right is to be expected. Buyers will also need to | | | | business developers already have established valuable |
| budget into their integration and growth plans some | | | | relationships and contacts that should prove |
| additional reserves which will allow for unforeseen | | | | advantageous for their new employers from day |
| consequences of potential short-term decreases in | | | | one. Companies that ramp up their sales forces while |
| market demand. Before implementing an acquisition | | | | their competitors are laying off talent may find that |
| plan, would-be acquirers first should ensure that they | | | | it's much easier to get in the door and close deals. |
| have the bandwidth - advisors, staffing and, no less | | | | Companies whose senior management command |
| important, the dry powder (cash reserves) - to close | | | | clear strategies, reliable competitive intelligence and |
| one or more prospective acquisitions. | | | | sufficient financial and managerial resources will find |
| Today's economy also presents very good | | | | this an excellent time to make concerted efforts to |
| opportunities for organic growth. Strategy consultant | | | | react opportunistically, capturing market share at a |
| Josh Hurewitz, PhD, writes in his newsletter Key | | | | discount. Both approaches to growth - either through |
| Business Issues for the Middle Market, that if this | | | | business acquisition or organic customer acquisition - |
| market is forcing a company to "...make significant | | | | constitute smart strategies in down economies. |
| changes to its approach to the market (getting new | | | | Companies that pursue such strategies and execute |
| customers, new market channels or new products | | | | well should find that their efforts will help them grow |
| and services), then marketing should not necessarily | | | | today while positioning them for success in an |
| be cut, and it might even need to be enhanced." | | | | eventual market recovery. |