17/02/10

By Jo Haigh, Head of Corporate Finance, ATF Group

If cash is burning a hole in your pocket and you can’t find, or indeed have no inclination to place it in, a secure home then acquiring a business may be just what the doctor ordered.

Provided, of course, that you have done your due diligence with as much vigour as in a more competitive environment there will undoubtedly be some bargains to be had for the shrewd, cash rich investor.

2009 saw 40,000 businesses go to the wall, with speculation that 2010 could see an even greater number fall. Those that survived, and continue to do so, are leaner and fitter. Although undoubtedly lots of worthy people lost their jobs, through no fault of their own, I suspect that a large number of executives had in fact just been treading water for some time.

Those that survived the corporate cull, although somewhat battle scarred, are generally speaking the fittest, sharpest and best prepared to embrace the new decade.

However a word from the wise; for many such people, ownership is the name of the game. Being hired hands has exposed them to insecurities they had possibly not encountered before. As a result the management of a target business, always paramount in a successful acquisition, will be looking for a stake in the ‘Newco’. The savvy acquirer should see this not as a hurdle to overcome but an opportunity to embrace.

However the problems for the foreseeable future are not so much about your new management but rather getting to a deal in the first place, particularly so for those acquirers looking to gear up the transaction on debt secured either against the target or its own assets.

Put simply; no matter what they say, the banking community is closed for new business and if they do open their doors even a sliver then the deals that are to be done will come laden with penal interest rates, punishing covenants and onerous personal guarantees.

Security, and lots (and lots, and lots) of it, is the name of the game and that assumes you can get your relationship manager to even take the possible deal to the bank credit committee in the first place.

Our company is running a conference at the Landmark Hotel, March 23rd, called Buying and Selling a Business, an entrepreneurs Guide. This event, aimed at owner managers, will contain specifics on business valuations, investments and tax advice along with expert legal opinion on protecting what you buy and keeping safe the proceeds from a sale.

We invited representatives of every major high street bank to present on their lending criteria as part of our panel of experts. Not one, not a single one was prepared to make a presentation, telling indeed. Well, we thought so!!

So, who will fund those highly geared deals if they are to fly? Why the vendor of course, for it is such a person who will take us through this economic crisis. The entrepreneurs who will take a risk or even a small gamble on a successful transaction and often without any sort of sound security, only trust and faith in their business and the acumen of those that acquired it.

Flawed? Possibly.

Essential? Definitely!

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