Crash-Proof Your Company

"Crash-Proof" Your Company Through Merger or Acquisition

The merger and acquisition environment in the U.S. today is strong for sellers, with some serious "good news" for business owners seeking to shore up equity structures. The aggressive and very acquisitive buyer markets are creating substantial opportunity for middle market business owners to "cash in" on some or all of their ownership interest. Also, with today's volatile and somewhat uncertain economy, the opportunity to reduce the risk of ownership and to potentially strengthen staying power with strong new equity, becomes even more attractive to owners as "insurance" for the long-term survival and prosperity of their middle market companies. There are several critical key factors that are particularly pertinent to assessment of today's environment for the middle market company. In other words,

7 Reasons Why Today's Economy is Good News for Business Owners

Global Economy - The breadth and depth of worldwide international business markets has truly reached an all-time high, in terms of enterprise connectivity and public worldwide "reach" of evolving products. Nearly every U.S. enterprise today is facing new levels of competition from offshore, often low-cost labor competitors. Buyers and distributors of product are reaching literally around the world to find the best and most competitive products. Large international power-houses seek entry to the U.S. through multiple channels, and acquisition of U.S. companies with today's dollar trade levels can became a very affordable option for the world buyer - as well as a secure underpinning for the U.S. company.

Tax Rates - Capital gains tax rates for U.S. sellers are at an all-time low. They may literally never be better than today. Recent discussions with Barack Obama mention a probable increase of the federal capital gains rate from 15% to at least 25% within a year of the upcoming election. Even Republican candidates will face intense pressure for increased capital gains rates, with increasing deficits and shrinking U.S. tax base. The net result is a capital gains tax rate more favorable today than is ever likely to recur in our lifetimes.

Bigger is Better - Consolidation continues, worldwide, in almost every industry, especially manufacturing. Bigger companies can be more profitable and can consistently spread overhead spending over wider sales. The result is increased pressure on the mid-sized manufacturer, and increased security and reward for raw increases in gross size. Bigger is better in today's world markets - and it shows in every industry.

Private Equity Funds - Private equity funds have become far more aggressive in their pricing of acquisitions over recent years. A decade ago, equity funds could rarely "compete" with the like-kind strategic buyer. Today they can - and they do, consistently. The count of private equity funds has also increased dramatically, with ten times the number of active funds today as there were only ten years ago. Today, literally half of the winning corporate buyers of mid-sized companies are coming from this powerful and growing force.

Power Capital - More sophisticated and better capitalized owners can bring staying power to the U.S. company to survive and remain healthy, even through a soft economy. Additionally, larger and more connected ownership can grant a company access to international supply sources and to worldwide sales and distribution networks. (International connections like these can be hard to come by, and costly for the mid-sized manufacturer to do on his own.) Size and equity add solidity and staying power to the enterprise.

Stock Market Volatility - The volatility of the stock markets in recent times has made individual stock market investments scary for the retired U.S. investor seeking to protect corpus. One popular alternative today lies in private equity fund ownership of middle market companies. Middle market investments, managed by astute and diverse equity fund drivers, can actually feel much more solid and stable than publicly traded investments, which are subject to faster market swings (propping up or knocking down values all too quickly.)

Weak dollar - Dollars are cheaper for international players today. As a result they can sometimes pay disproportionately high prices in today's acquisition markets. This means potential bargains for the international buyer - and potential "home run" deals for the U.S. seller.

Conclusion - For business owners of middle market companies in the U.S. today, the above factors are good news. It's nice to know that equity is out there, is moving, and is available, so the options for potential cash-in on a lifetime of hard work aren't bad in 2008.

Deborah Douglas, Managing Director and Author
DouglasGroup.net

'Ripe: Harvesting The Value of Your Business'
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