Jump on a deal or wait?
Friday, May 1, 2009/
Buy your competitor? In the ICT sector, a suite of opposing drivers lurks behind the ‘relatively unchanged’ M&A market recently. The demise of the good-time bull market is driving some business owners to stop waiting for the peak, increasing availability of targets. Many of those vendors have not (yet?) felt serious, direct negative economic impacts, so they’re not compromising their valuation expectations, maintaining valuation levels.
At the same time, there are a considerable number of acquisitive strategic buyers around, even if the purely financial investors are pretty thin on the ground. Smaller, strategic transactions are generally funded out of cash flow, not bank debt so the tight credit market is not having such a great impact (as if SMEs could borrow, before?). Many, however, are holding fire like Vic, in the hopes of seeing more compromise on pricing somewhere down the track.
These factors are combining to create a relatively stable deal flow in terms of completions, but with that much more work going on to make it all happen. The chicken bones haven’t yet told me what’s going to happen next, though.
For Vic, if it’s a good deal now, delay increases your risk of losing it, for chasing a better one – ‘a bird in hand is worth two in the bush’. Worse, if your target is in strife, they’re probably losing customers, staff and momentum – and will lose more before you act. If they begin to compromise further on price, other buyers may emerge – they certainly will, if your target finds someone like us, who can help them find those buyers.
I would also look at the impact on your firm – if you wait six months on this deal, is that another six months before you can move on to the next bigger, better strategic move – or start kicking yourself for having let it slip through your fingers?