Opportunity knocks, but doesn’t always answer to its name. — Mason Cooley
As our national economy struggles to regain its stride, it has created an environment that is fortuitous for some and perilous for others.
Just like public companies, private company values have fallen. This condition can be observed to differing degrees across various industries. There is excess capacity in certain industries resulting in under utilized assets and consequently lower earnings. This has created excellent opportunities for healthy companies to expand through consolidation.
Low Valuations Equals Opportunity
Many companies are trimming down to core competencies. As such, they are divesting of marginally performing assets and operating units. In some industries, the economic downturn has created financial stress on thinly capitalized companies. These under capitalized companies cannot cover variable costs due to low demand or the interest cost on debt. In such instances, assets are being acquired at or below intrinsic value resulting in limited or no goodwill. Acquiring these businesses at low valuations creates a cushion or greater margin of error if operations fall short of projections.
Healthy Capital Market
Now is the time for healthy companies to become buyers. Market forces are converging to create opportunities in various industries to purchase solid performing assets at reasonable multiples while the capital markets have liquidity to execute the transactions. For many companies, this is an infrequent or one-time-only prospect, and owners should consider seeking experienced professionals to assist in the process.