This is part of an article first appearing in the Twin C ities Business Magazine (July 2009) & was written by Ingrid Case,

Mergers and acquisitions have decreased sharply-except where they haven’t.

….With private equity firms less able to pay top dollar for companies, sellers are less eager to part with their firms—particularly when they remember what those firms might have sold for two years ago. “There is a gap between what sellers consider a reasonable value for their business, and what buyers are willing to pay,” D’Aquila says.

The combination has private equity firms spending time working to manage and improve existing portfolio companies, or sometimes to restructure existing deals. Though some private equity buys still happen, the group as a whole has taken a back seat to strategic buyers.
Pockets of Activity

Sellers who can wait are often sitting tight, declining to sell until valuations recover. “Sellers who are in no hurry have no reason to sell,” says Bruce Engler, head of the M&A group at Minneapolis law firm Faegre & Benson, LLP. “They’ll wait until things get better.”

Some business owners, however, are motivated to sell. A few have health or family issues. Many are concerned that their firms won’t survive the current economic downturn unless they sell. “These are companies selling from a position of weakness,” Engler says, adding that such firms can change hands for as little as two times EBITDA.

Other business owners have little choice about selling. “If it’s a public company, the board of directors have to sell if they think it’s in stockholders’ best interest,” says Ivar Sorensen, managing partner of The M&A Group, a private investment bank in Minneapolis.

Or the firm could be the target of a hostile takeover, an increasingly common possibility in light of significantly reduced stock valuations, says Mike McFadden, co-CEO of Minneapolis-based private investment bank Lazard Middle Market.

When deals do take place, the buyer isn’t always a private equity firm, as was so common in the past few years. Instead, strategic buyers are once again the most competitive and active buyers of other firms.

“Corporate players are better able to make strategic investments now because the competition from the private equity firms has been tempered,” Sorensen says. “Corporations are sitting on huge amounts of available capital. They had a long run of very profitable operations, up until recently. Some have reported huge losses in 2008, but those aren’t always cash losses—they can be write-offs of intangible assets such as goodwill, which has no impact on cash flow, and may even help cash flow by reducing tax liability.” That puts them in a great place to buy.

Strategic buyers are typically looking for a bargain, says Cliff Allen, vice president of business development at Minnetonka-based Packard Acquisitions, which finds businesses that meet prospective buyers’ requirements. “People are looking for deals, for good properties that are undervalued,” he says. They hope to pay a price equal to perhaps four times an acquisition’s EBITDA—saving two to three multiples compared to what they might have paid in 2007.

Cliff Allen

Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition

Cliff Allen

Office/Cell: 651-226-2853 Fax: 651-578-7567


read whole article

Have something to add? Your own business wit?

Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.


Add yours

  1. A sale to a strategic buyer is not the only solution for private business owners seeking liquidity. Even in a challenging credit environment, leveraged ESOP transactions can be consummated where the company borrows money to lend to a newly formed (or existing) ESOP to buy shares from the sellers. The pricing will be based upon current fair market value. However, tax advantages will allow the sellers to keep more of the proceeds. In addition, ESOP deals are more flexible. Sellers can sell a minority stake to deal with an immediate liquidity need and still hold onto the rest until pricing improves. At that time, the seller can sell the rest of his stock to the ESOP or sell the company (or just his stock) to a financial or strategic buyer. For sellers that also want to do some estate planning, the period immediately after consummating an ESOP deal is a great time to implement a plan involving the some or all of the remainder of the seller’s stock.

  2. Deal flow from our perspective has not diminished, but to accomodate the downturn in the economy, the structure has changed, but most of the change has been in the annualized ROI in the first 3 years, which has gone from 15% to 20%, up to a minimum of 30%. Translated, it means the initial liquidity is less, but the deferred exit is higher, and when all said and done, the multiples are still between x 60. and x 8.0. We don’t bring buyers in unless they agree to certain parameters, so it’s just a matter of adjusting to the times.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑


Acquisition, the inside story

Pacquisitions's Blog

Acquisition, the inside story

Dan Stewart Media

Promote. Express. Create.


WordPress.com is the best place for your personal blog or business site.

The Changing World of Employment

The blog presence of Vallon, LLC and our friends!

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: