By William Keiper, CEO of the M&A Forum
Much has been written about the global financial meltdown which is still in process. It is one of those events that would be better experienced by looking in the rear view mirror of history, as was the Great Depression for those of us younger folks. Unfortunately we are living this one in real time and ‘Real Life’.
My friends at Cascadia Capital summarized the current conditions well: “The recent weeks and months have seen unprecedented change in the global financial system. Not only have we witnessed unprecedented volatility and steep declines in market indices worldwide, but also government intervention at levels not previously contemplated…Parties who have no immediate need to engage in a transaction are likely to stand on the sidelines for the next two quarters, if not longer. But we caution companies to be proactive with respect to understanding the health of their lenders; this is important so companies aren’t thrust into situations where capital is required with limited time to plan or react. That said, there remains significant capital accumulated in the hands of private investors. And while majority recapitalizations are under duress as a product, appetite for minority growth equity and recapitalizations in middle market companies appears strong in sectors that are still growing…Deals will continue to get done.
Outside of the private capital realm, strategic buyers and foreign buyers remain active in consolidating industries that are not impacted by the banking crisis. The pendulum has shifted, and these buyers welcome the change of conditions.”
Serious buyers remain prepared to continue acquiring even in the current market conditions. The IT sector is one that is still growing, albeit at a slower rate now than before. There are buyers who are finding creative ways to get deals done today, and sellers of IT companies are getting attention through the vehicle of the M&A Forum and others…several Forum deals have closed in the past couple of months, and we have handful of deals at the letter of intent stage now.
One of those letters of intent involves a company that was recently put in a very difficult position by their lender—jeopardizing the value built by the owner over a number of years. He was not prepared for the change in the credit market—a change that affected him quickly and directly—right in his ‘Potential for Liquidity’. He was forced to act quickly to find a buyer who could take him out of his predicament and his business, and preserve some of his hard earned asset value. This project was started two weeks ago…he now has two letters of intent, and three other interested parties—with the intention of closing the deal before the end of the year (six weeks from now). It can be done…
Although “remaining on the sideline” may seem like the better choice at the moment—if you must make a move to sell your IT-related business—there are buyers prepared to pay reasonable valuations, if you know where to find them. If you are OK staying the course, remember the old Buddhist saying, “Before enlightenment; chop wood, carry water. After enlightenment; chop wood, carry water.” Despite the losses of value and asset re-pricing that we have all seen—that has directly affected our lifetime of building for retirement, children’s education, care of parents and myriad other requirements—we all have to do what we were doing before…staying committed to our businesses and pursuing our work with redoubled energy and resolve.