Reposted from Monday, March 9, 2009
By Rick Gould, CPA, J.D.
For most prospective buyers, an acquisition in this period of economic uncertainty appears high risk. Some buyers may be hoarding cash reserves previously earmarked for acquisitions in case the downturn sticks around longer than anticipated.
However, now may be an opportune time to acquire IF:
• A firm is stable financially and has a clear vision and strategy, and
• A firm’s strategy is to strengthen core business, create a new niche division or to have another “existing” office.
While the strategy of most firms in a downturn is to focus on maintaining the core clients and specialties, an acquisition can be a positive option to supplementing core values. Expanding in scale and scope can both add to a firm’s bottom line and post-recession position. More time is available during a recession to focus on effectively transitioning the merged firm.
From a sellers’ perspective, we have found that many who have never entertained selling before are doing so now. They are looking to be relieved of back office, gain depth of staff, have access to additional capital, protect their present financial position and secure the family financial future. The correctly matched buyer will support their priorities and values.
Other prospective sellers have realized from this downturn that being an entrepreneur is not always lucrative and fun. The financial and personal risk became more real, and they concluded that managing all aspects of the PR agency may not be for them. PR and client service are their passion, and their preference moved away from independent entrepreneurship and toward securing a senior level position within a larger PR firm.
Although valuation multiples have certainly decreased, we do not anticipate they will be further reduced.
The best positioned buyer firm will have a solid acquisition investment plan. Such a plan consistently points to the goal of making an already valuable buyer’s business even more valuable.
When managed, cultivated and executed properly, the acquisition investment for the buyer will have a significant payback. The value-added in earning potential will be in multiples more than its cost once the investment is recouped. Few, if any, of the major public firms today grew solely through organic growth.
What may spell economic uncertainty to selling firms could translate to major opportunity for those properly positioned on the acquiring side.