No kidding, we are in a recession, or worse. If you are a seller in a recession there are two schools of thought: either sell your business for a poor price or hold on for better timing. The selling process is usually long so that one cannot simply reverse the strategy without consequence. This can work to the buyer’s advantage. Often the best deals for the buyer are made during the worst times.
Valuations are depressed, bank financing has dried up and quite frankly there is little reason for anyone to complete a deal. To put it bluntly if the seller’s business is surviving in a bad market odds are it is a good business to be in. So you want to be a buyer at the bottom when it can’t get any worse rather than buying at the top only to see the business cave in when the going gets tough.
Indeed we recently pulled the plug on a letter agreement with a nice $14 Million company because the numbers were plummeting only to find out now that the company just filed for bankruptcy. The worst can happen to the best of companies during an economic decline, that’s the way it works.
Which is to say that now is the best time to buy. Anything that makes money in this market can’t be all bad. What’s true for the stock market is every bit as true for buying businesses. Buy low, sell high. It is quite simlple.
A buyer in a bad market, again, has several advantages. For those businesses that are compelled to sell, he is the white knight. But the buyer will be confronted with a target company ravaged by economic pressures and often barely, if at all, bankable. First of all, the banks are never completely dry and well constructed deals are always a premium commodity. Having bank financing lined up during a poor economy is the equivalent of a done deal. Second, yes the valuations are lower, the sellers are easier and the terms are much more favorable. Remember those awful times when things were so good? The sellers were so cocky they walked away from every offer … now they regret it.
Unlike the real estate and stock markets, sellers of businesses are rarely driven by market conditions, rather by personal life circumstances which most of the time takes priority over a recession. So they will often need to sell even during a bad economy. It happened in the 80s, 90s and even in early 2000, although more with dotcoms than with traditional markets. Whole industries tanked and then came back which provided the great opportunities for buyers during those down years. So its up to all of us to get off the fence and start cranking now while the opportunites are hot.
