Keep an eye out for bargains

Excerpt reprinted with permission from The Credit Crunch: a Practical Guide, Grant Thornton LLP, 2008


What’s the issue?
As lending markets contract, some companies will have or anticipate having liquidity problems. A number of these companies will consider a sale transaction as a viable option. It could be a need to preserve personal wealth, the real or perceived lack of alternatives, or a lack of confidence in a recovery. This feeling of uncertainty will drive many shareholders to seek an exit or partnership with a strategic investor rather than hunkering down and trying to weather the storm independently, thus creating buying opportunities at depressed prices.

What can you do?
Well-funded companies looking to add market share, expand product/service offerings or recruit quality people might find it less expensive to acquire targets that fit this criteria than it would be to invest internally and try to achieve these goals organically.

The same limited access to capital that pushes some companies to sell will keep other companies, that would have been suitable buyers in a normal lending environment, on the sidelines. Additionally, traditional leveraged buyout funds will have more limited access to the “leverage” that allows them to consummate transactions at targeted returns. The result will be less competition for attractive acquisition targets, and thus, potentially reduced pricing multiples on acquisitions. Seeking a professional adviser can increase exposure to such opportunities while ensuring transactions are priced and executed in an effective cost-efficient manner. Whether you’re playing the stock market, engaged in real estate or considering acquisitions, the best buys are made in a down market.

What to avoid?
Do not make an acquisition just because you can. Good acquisitions are part of a well-thought-out growth strategy, combined with proper transaction execution and integration. Failure to approach acquisitions objectively can prove fatal.

More importantly, this is not the time to become distracted. Remain absolutely focused on the day-to-day running of the business. Be mindful of debt capacity and don’t over-leverage the business.