Mergers and Acquisitions – Opportunities in Downturn

The current economic slump in United States has opened up a window of opportunity for foreign buyers interested in gaining foothold in USA. The deal is further sweetened for them as most of the domestic players will shy away from acquiring businesses due to the recession and weakening dollar situation.

How does the US middle market business profit from selling their business to a foreign buyer in times of a weak dollar and weaker economy?

The important thing to remember here is that although foreign investors are entering in US cheaply with the intent of riding on the downturn and raking more profits when the economy picks up, but they are still dependent on the locals to understand and navigate business in the unique US culture. An experienced investment banker will advise a seller on how to benefit even during downturn. A seller can sell portion of their business and hang on to some part while also staying on as a manager to guide the business through downtown into economic stability and eventual prosperity.

Private Equity Groups (PEGs) are also sourcing middle market deals as the field is getting more competitive (there are 1800 PEGs is the US. They have shifted focus from larger deals which are few and far between and have turned more resourceful and flexible in keeping an eagle eye on investment banker’s auction to gain exclusive M&A deals. PEGs can be an important revenue source for business owners when bank loans have dried up).

An economic downturn is also an opportunity to grow strategically at more reasonable prices compared to the highly inflated prices of boom time. This can be the right time to explore for mergers and acquisitions. It could be good idea to hire a professional M&A advisor or an investment banker who is well aware of the market trends. Besides there are certain checklists prior to jumping on this bandwagon:

(1) Check twice prior to formulating the overall plan for integration with existing set-up
(2) Keeping the owner as manager can act as motivation for closing the deals faster but it also needs to be verified whether that would go well with your own senior team
(3) Be prepared to face lot of legal and administrative hurdles
(4) Never pick targets that are too small to waste efforts
(5) Create a board of experienced outsiders who asks the right questions to keep you on track and don’t acquire faster than you can integrate.

Lastly, after months of discussion, the deal might get complex and tense while drafting letter of intent (LOI) for closing. You can minimize your risk factors if you have a team of experienced M&A business advisors by your side. They can prove to be of great assistance with due diligence and legal and tax compliance besides drafting favorable Purchase & Sale Agreement with their team of expert economists, accountants and lawyers.

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