Dealmaking Today and The New Normal

“The future ain't what it used to be.”

Yogi Berra


Business owners expecting to ride out the current economic storm until things return to normal are beginning to listen to that little voice in the back of their head telling them, this is it, this is the New Normal.

So what does this mean to the deal making community?

In my world of midmarket mergers and acquisitions (ComReal’s typical deal structure is between $2 and $50 million) it means the smart money is stepping off the sidelines and into the game. They realize waiting to move until the market hits the bottom is a suckers bet.

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. "

Warren Buffett

Companies staring at zero or slightly negative organic growth are seeking acquisition strategies as a means to keep the revenues rising. Many also see an opportunity to pick up some competitors on the cheap who are faltering under market conditions. Because financing is so tight, only the well capitalized companies are pursuing this strategy, which actually increases the chances for making the deals work. All banks say they are lending, but per the New Normal, only to safe bets like a well capitalized company. It is times like these that good companies seize opportunities and become masters of their market.

On the flip side sellers who have positioned themselves to withstand the economic turmoil are in the catbird seat. In addition to the aforementioned strategic buyers, private equity groups are sitting on funds for buyouts. In their world it is use it or lose it and many are running out of time before they have to start handing money back to investors. So they are buying, albeit cautiously. And of course the weak dollar still manages to attract foreign investment.

There is a fundamental misunderstanding about declining valuations. Because most deals are structured as a multiple of net or gross revenue and because the market overall market has seen a reduction in this revenue, deals overall are reflecting lower price points. But the multiples themselves have remained relatively stable and in some cases have risen among those companies that have proven to be recession resistant. If you’ve worked hard to put yourself in this position strike while the iron’s hot to capitalize on it.

Of course another reality of the New Normal is that to truly attain maximum results requires the steady guidance of an experienced professional advisor. You can be sure the other side is using them. If you find yourself seeking a business or commercial real estate transfer strategy please call ComReal for a no obligation consultation.

Michael Weihl mweihl@comreal.com

Business Intermediary

ComReal Miami Inc. www.comrealmiami.com