Newsletters
07/01/2010 – Transact Capital Partners – Our 2010 Mid-Year Report Card
By Steve Zacharias
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Dear clients and friends,
A year ago I wrote you a letter entitled “Yes, Deals Are Getting Done (and the State of the Economy)”. As I went back and read it today, I’m pleased to report that most of my prognostications have held up. M&A transactions, especially among smaller businesses, are still occurring; although many are being completed quietly without sellers touting the high price multiples that they once hoped to achieve during the “bubble years”.
As to the economy we have heard that phrase “new normal” quite enough…maybe now, after three+ years of economic slowdown, we should just start calling it “normal” again. So what is different today in the deal market and what is normal?
M&A deals are getting done. They take longer; they require more discipline to complete; “cash” gets attention; bank loans are scarce; seller financing is expected if not required; due diligence takes longer and goes deeper; valuations are lower; offer letters are more often re-negotiated, or withdrawn; sellers are more impatient; and serious buyers are fewer and know they have alternatives.
But yes — deals are getting done. Especially smaller deals with strategic buyers and equity fund money searching for high returns. And sellers can still obtain reasonable price multiples if their business is shopped appropriately and thoroughly. Even with fewer bidders in the market or players at the table, a good broker/banker can still create a competitive market for achieving reasonable (not irrational) sale prices. Our last deal is an example:
On July 1st, we announced the sale closing of a major mid-Atlantic floor covering distributor to a larger national distributor in the same industry. Our client was approaching $40 million in sales when the housing and home sales market started tanking, diminishing demand for their products. The company operated out of five warehouse locations in the mid-Atlantic, had huge ongoing working capital requirements and had leveraged itself to meet the fast paced growth during the housing boom. In searching out strategic acquirers, we knew that the entire industry was suffering with sales declines, sharp competitive price cutting, lay-offs and other cost savings initiatives. However, two such firms when consolidated into one can produce significant synergy savings by eliminating redundant costs and expenses, and we aggressively shopped them to others in the industry. One major cash drain for our client was a large, newly leased warehouse and office facility for their headquarters in North Carolina. It was determined that the landlord was not going to sympathize with the company and reduce the lease costs for the now lower occupancy needs that developed. But that burden to our client became a key driver in actually getting the deal closed. It was the research and realization that one particular strategic buyer put a high value on the huge warehouse and turnkey operation, both from leveraging the two operations and the strategic geographic location. The leased warehouse facility became a positive variable in driving the price to an acceptable level for the seller, and relieved them of a huge long term lease commitment that was threatening them financially if the downturn continued. After very extended due diligence and several stalemated negotiations, we closed the deal with satisfied parties on both sides (see seller testimonial).
That was our fourth deal closed this year, and we have several others in the pipeline in various stages of negotiation.
So in these tough times – what should you expect from your M&A advisor to warrant your business if you decide to sell or recapitalize? It’s quite easy for all of us to emphasize such attributes as knowledge, expertise, experience – that seems to be highlighted on every broker website. But what’s also critical but maybe not so apparent in today’s turbulent times are other desirable traits: dedication, patience, discipline, persistence, creativity and a genuine interest in achieving client goals. I personally think these attributes are the ones that really move both price and probability of success to a much higher level.
For full disclosure, we were hoping to announce and include a fifth deal in the first half report; but with the current deal environment, it has been delayed again! But I’m convinced an announcement will be coming this month. Stay tuned.
In closing, I want to sincerely thank you for your interest in our firm’s progress and its people. And for each of you, I wish you great success in your own business, personal endeavors and family life.
Best regards,
Steve Zacharias
Managing Partner
About Transact Capital Partners
Richmond, VA based Transact Capital Partners is a premier investment banking and business brokerage firm that offers expertise in the areas of business mergers and acquisitions, valuation and equity recapitalizations. Transact Capital’s sell-side representation is primarily throughout Virginia and the Mid-Atlantic region while their acquisition searches take them across the U.S. and abroad. Transact Capital’s team combines decades of transaction-related experience and professionalism with hands-on attention to detail for those small to mid-cap privately-held businesses having revenues of $1 million to $50 million.
05/01/2009 – “Yes, Deals Are Getting Done (and the State of the Economy)”
By Steve Zacharias
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Dear friends, clients and colleagues,
It has been months since I have written you so I hope this message finds you doing well personally; and your business is successfully weathering the economic storm that hit us in 2008 and into 2009. It impacted each of us in different ways.
As business owners, many of us quickly battened down the hatches to combat what we believed to be a long drawn out recession.
Some of us have been required to make certain “adjustments” to sustain ourselves in facing the uncertain future. And for others, this deep economic downturn has served to strengthen us on all fronts – making our personal lives more enriched with the realization that there is much more to life than a bulging 401(k) account, flat screen TV’s on every wall and matching BMW’s in the driveway.
Despite all the gloom and doom, there are some hopeful signs on the horizon – so called “green shoots”, indicating potential recovery ahead. A slowing pace of initial unemployment claims suggests the recession may be easing and could foreshadow a revival in consumer spending. The frozen housing market appears to be thawing in some areas thanks to historically low interest rates, stabilizing prices and tax credit refund incentives. Major banks endured stress tests that told us – well, we don’t really know for sure – but financial stocks have been recovering nicely of late and the S&P market index actually rose above the level it was at on January 1st of this year. Most financial prognosticators are beginning to turn and predict an earlier upswing in the economy than originally thought. However, we also know there are no assurances that we are out of the woods, and some believe we have not seen the real economic “bottom” as of yet.
Closer to home and to Transact, the business transaction climate is definitely down, but is amazingly better than may be expected. Sure, after closing several deals last fall, deal closings at Transact came to a complete halt in January (sort of like Tiger’s golf game following his knee surgery).
But more recently, deal flow is actually increasing and we expected it to be ahead of 2008 by August. We just closed a sale transaction on April 30th, and have three other transactions under contract. New clients no longer come in to our office talking about waiting until the “market” returns to normal to sell their company; they seem to “get it” — that valuations may be down somewhat but the sale proceeds will buy much more today than it would two years ago, whether it be stocks, bonds, real estate, a new car or a coffee latte (at McDonalds McCafe of course)!
And for those who said – “gee, I wish I had sold my company two years ago”, I say “…sure, would you have invested the proceeds in the stock market then and where would you be today?” I think you “get it”, so let’s move on. (For more on this topic, please read the article by my colleague Stan Maupin below).
Anyway, we have our health… and the economy will improve – it always does. And we will look back and second guess our decisions (or lack there of) during this crisis. And there will be a new “bubble” one day – maybe in “green energy” (reminds me of black tulips see tulip-mania – or biotech (remember earthworm farming!)
So thanks for letting me share these random thoughts with you, and I wish all of you great success, good health and prosperity in the future. Now it is time to get back to business!
Steve Zacharias
Managing Partner
Transact Capital Partners
Six reasons It’s a Good Time to Sell a Business
and Why You Shouldn’t Care
By Stan Maupin
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A question I often hear from business owners: “Will 2009 be a good time to sell my business?” They are wondering whether the market for business acquisitions has suffered the same pummeling that the real estate market has experienced. Are things so bad that they shouldn’t even consider selling their business this year?
Unlike real estate, this isn’t a question you can answer statistically. It is hard to find timely data on the subject, and you can’t easily use “comparables” to determine trends in values. Instead you have to explore two fundamental questions about the marketplace: Is there strong demand among potential buyers of businesses, and is there capital available to pay for those acquisitions?
Let’s end the suspense right now: The rest of 2009 will be a good time to sell a business. There are at least six trends that support that conclusion, and I will list them for you later.
But before I do, I’m going to tell you why you really shouldn’t care about the conclusion or the six reasons that support it. More accurately, I want to tell you about two things that you should think about first ? maximizing the return on your capital and meeting your personal needs.
In order to maximize the return on the capital you have invested in your business, you should… continue reading.