An M&A checklist for buyers and sellers Featured

8:00pm EDT April 25, 2010

GDP is ticking up, consumer confidence has more than doubled in the last twelve months and industrial production is increasing. Does that mean the time is right to consider an M&A transaction — either as a buyer or a seller?

Smart Business spoke with Bill Watkins, co-head of new business development for Harris Williams & Co., a member of The PNC Financial Services Group, about the current climate for mergers and acquisitions and how a company can position itself and prepare to maximize today’s opportunities.

What is happening in the M&A market?

M&A volume has begun to pick up substantially. While an improving economic climate is at the forefront, there is also greater availability of capital and more robust demand for high-quality companies. The debt financing markets, as evidenced by record volumes of high-yield financing, have begun to rebound. Additionally, it is estimated that private equity firms have more than $600 billion in uninvested capital to put to work, which represents more than $1 trillion of buying power.

Strategic buyers have spent the past 12 to 18 months focused internally to rationalize and improve operations and balance sheets, and many are now aggressively exploring M&A as a growth vehicle. Overall, considerable pent-up demand exists following a year with very low deal volume. In this environment, companies looking to sell or acquire assets have a lot more options than they did a year ago.

How can companies benefit from today’s environment?

Businesses that performed well through the economic cycle are able to achieve relatively strong valuations. Owners of privately held companies might consider selling their business to transition ownership as they plan for succession or to realize their investment prior to potential capital gains tax rate increases.

Today’s market offers a unique opportunity for companies to buy assets that will enhance their business. Sellers of quality businesses that waited on the sidelines during the downturn are re-emerging, and there are a large number of assets for sale that experienced some level of distress as the economy turned.

What should buyers look for?

Buyers should seek out quality companies and industries that were less affected by the downturn than their peers. When pursuing an acquisition strategy, buyers should look for:

  • Market leadership
  • Sustainable competitive advantages
  • Financial stability
  • Excellent growth potential
  • Potential business synergies

Carefully evaluate the potential net gain. Will the target strengthen your company by diversifying markets and customers or adding management depth? Or will the distractions of integration pose a significant risk to your business?

It is also important to remember that a bad balance sheet does not necessarily mean a business is bad; distressed M&A in the current market can provide an opportunity for future value creation. As you consider an acquisition, communicate early and often with your financing partners about acquisition debt capacity. Although the markets are improving, this is not the time to take credit availability for granted.

How can sellers position themselves for success?

As the credit markets continue to strengthen, sellers who are sufficiently prepared will be able to choose the best time to approach potential buyers. If your business and/or industry is struggling in the current environment, now is not an ideal time to sell. It is better to focus on your operations to better position your company to exit when conditions improve. If your business is performing reasonably well, you should undertake a review with an eye to making some business enhancements in order to optimize the outcome of a transaction. To make your company as attractive as possible, consider:

  • Building management depth and strength
  • Improving financial and IT systems
  • Developing your sales and marketing muscle
  • Diversifying your customer base
  • Implementing organic growth initiatives
  • Rationalizing operations
  • Addressing contingent liabilities

Are there other considerations for buyers and sellers?

In the context of an M&A strategy, both buyers and sellers should:

  • Carefully plan out their objectives
  • Identify the strengths of their business and growth opportunities
  • Hire an experienced adviser to explore their options and help determine the best strategy
  • Understand market trends and the outlook ahead

With good preparation and careful timing, companies can take advantage of today’s M&A market and position themselves to reap significant long-term benefits.

Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd., an Appointed Representative of Sturgeon Ventures LLP, which is authorized and regulated by the Financial Services Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd. conduct business in the U.S. and Europe, respectively.

This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transitions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant, or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.

©2010 The PNC Financial Services Group. All rights reserved.

Bill Watkins is co-head of new business development for Harris Williams & Co., the premier middle market adviser, with a 20-year legacy in sell side M&A. Harris Williams & Co. is a member of The PNC Financial Services Group. Reach Watkins at (216) 689-2404 or