A d d u c e n t

Smart people (and smart businesses) learn to adjust to circumstances.  When the markets (both credit & capital) locked up, and many lost their heads, their focus and their way ... others did not.  Those that "kept their head about them" are going to be the ones that come out of this recession and market difficulty with more "skin" remaining and a healthier postion, than those who did not.  I think that can be equally said about government, business and individuals.  Sometimes it takes a significant scare and going through a tough period to bring about a change for the better.  I hope that we all learn from recent events.

Despite the markets at large having a tough time right now, we have seen continued activity from business buyers, who are finding new ways to approach transactions to get them done.  Many that we work with have even notched up their appetite for deal flow and are very aggressive since they do have capital and ability to move on deals quickly.

Many are portfolio-focused now, making add-on acquisitions. And this is very positive for intermediaries who can source and bring them private lower to middle-market companies, which are often the target for add-on acquisitions.  These types of acquisitions are often easier to do (or to make a case for when presenting to an investment firm's limited partners--who 'sign' the checks for the deals) because they are smaller investments that are being folded into an established platform.

Some of our buyers are working on "roll-ups" to consolidate a niche industry (where they strategically add on to their platform one small company at a time, until they have a larger business with a commanding market share and defensible position in the market due to size). When the market improves, this type of business usually will attract a premium price. The owners of that company could then recognize a very significant return, as most of the individual businesses that make up the dominant company would have been purchased at market (not necessarily premium) prices.  Creating a business of size became a value multiplier greater than the value of the smaller individual pieces (companies).

Buyers are currently committing more equity (cash) to their investments. In the past, many financed about 2/3 of a transaction’s price with debt. That ratio declined substantially in 2008 and 2009, with a rise in cash committed to deals. 

Capital is building up for many investment firms that will need to find a business to put the money into. 

This is going to benefit lower middle-market companies (transaction values below $100 million) and intermediaries and finders that can play a significant role in sourcing deals for buyers.