The mergers and acquisitions market
remains strong, with more than $3.6
trillion worth of worldwide acquisitions for the first nine months of 2007, up
50 percent over 2006, according to
Thompson Financial. While the debt markets have tightened leverage multiples,
deals — particularly in the middle market
— are continuing to get done.
Smart Business talked with Bob
Baltimore, director at Harris Williams &
Co., to learn what contributes to the favorable sale of a company and what today’s
market means for businesses considering
M&A activity.
What makes a company attractive in today’s
environment?
Regardless of market conditions, quality-run businesses will always generate the
greatest demand in an M&A process. Companies that have an effective management
team, strong financial performance and
compelling growth characteristics backstopped by sustainable competitive advantages will almost always generate interest
from the buyer community. Sellers should
not overlook the importance of housekeeping. First impressions do matter, and
this includes things as simple as organized
inventory and well-maintained facilities.
How has today’s credit environment impacted the sale process?
Larger transactions, particularly private
equity buyouts of more than $1 billion,
have been the most affected by the turbulence in the credit markets. As an adviser
focused exclusively on middle market
transactions valued at less than $1 billion,
Harris Williams & Co. continues to see a
significant amount of activity. A key to success with any sale process is finding the
right buyer. While credit has become more
expensive in the middle market, financing
sources are open for business.
What industries have experienced the most
activity?
Activity has been very widespread across
a broad array of industries. Within the last few months, we have sold businesses in
energy and power, technology, transportation, health care, business services, building materials and consumer products.
Clearly, certain elements of the building
materials market, namely those focused on
residential construction, have experienced
a slowdown. But even in an industry that is
under pressure, market leaders with a
clear, effective corporate strategy can continue to perform well. Being an industry
leader or having a distinctive niche within
an industry provides the greatest opportunities in a sale process.
When is it a good time to sell a business?
Deciding to sell a company is one of the
biggest decisions an entrepreneur can
make in his or her lifetime, and there are a
number of factors, both external and internal to the company, that play into the decision. Macro-economic conditions are an
important consideration. The U.S. economy remains strong, providing growth
opportunities for companies and pools of
capital to an active community of corporate buyers. International buyers are taking
advantage of a weak U.S. dollar, and private equity groups have significant levels of
uninvested capital that needs to be put to
work.
Internal factors are no less important
however, including the strength of the
company’s financial performance and the
industry in which it operates. Furthermore,
a sale can facilitate management or shareholder transition, provide capital for
growth or liquidity to owners on a mature
investment. All of these factors need to be
assessed before considering a sale.
How can companies prepare for a sale
process?
The first step is self-assessment.
Management needs to examine the business as if it were the prospective buyer and
address any potential concerns prior to
marketing the company. A good sell-side
adviser can help identify areas of improvement and ensure that the company is positioned well before a formal process begins.
It is important that senior management
research industry trends and the competitive environment to develop a clear picture
of where the company fits. The next step
would be to develop a three-year growth
plan to demonstrate the opportunities to
prospective buyers. Based on the company’s specific situation, accountants and
other advisers may also be beneficial in
preparing the company for sale.
To learn more, visit PNC’s Middle Market Advisory Services at pnc.com/joinus
or go to harriswilliams.com.
This article was prepared for general
information purposes and does not constitute the provision of investment, legal,
tax or accounting advice. Any reliance
upon this information is solely and exclusively at your own risk. M&A advisory
and related services are offered through
Harris Williams & Co., one of the nation’s
largest middle market M&A advisors.
Harris Williams & Co. is the trade name
for Harris Williams LLC, a subsidiary of
The PNC Financial Services Group, Inc.
Harris Williams LLC is a registered broker-dealer and member FINRA and SIPC.
BOB BALTIMORE is a director at Harris Williams & Co. Reach
him at [email protected].
