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Selling Your Company–Removing the Obstacles to Success
By: George Spilka
Posted: January 10, 2008, from the January 2008 issue of GCI Magazine.
page 2 of 53. The globalization of business has had many negative effects on middle market acquisition pricing. The cost advantages often available to many non-U.S. based companies has heightened the acquisition interest in many foreign markets and companies. This has minimized what was once buyers’ preeminent emphasis on the U.S. market for acquisitions. Furthermore, in certain industries and for certain companies, where a seller only possesses a significant sales presence in the U.S., many acquirers’ interests have been reduced due to the selling company’s inability to generate foreign sales. The combination of these factors has had a tendency to reduce acquirers’ price aggressiveness in pursuing this type of deal.
4. In general, acquirers are used to taking advantage of middle market sellers. Acquirers are trying to obtain a company for the lowest price possible. If a seller’s advisors have only limited strategic deal capabilities, they are often susceptible to accepting substandard prices and deal term norms that are not conducive to the maximization of a seller’s economic interests. Worse, if uninformed sellers try to handle a sale without an acquisition advisor, they often don’t grasp the complexity involved in getting a large acquirer to pay a premium price while providing reasonable protection to a seller in the deal terms. As the attainment of a premium-priced deal will only be obtained by a seller that executes the sale process with skill and expertise, it requires an advisor of considerable sophistication.
5. Acquirers are used to getting unreasonably protective terms in the representations and warranties. This shifts an unfair amount of the post-closing deal risk to a seller.
6. The inability of sellers and most advisors to access foreign markets for potential acquirers greatly reduces the number of strategic acquirers available.
7. For many companies, earnings remain depressed. These depressed cyclical earnings have given acquirers the leverage to demand substandard deal pricing despite any positive future economic outlooks, which should be the drivers of current deal pricing.