With Traditional M&A Players Still on Sidelines, Small and Mid-sized Businesses Have Unique Opportunity to Make Strategic Acquisitions

8/2/10

The recent economic turmoil forced rapid change on the mergers and acquisitions marketplace, as the tightening of available credit pushed traditional M&A players—primarily private equity investors and large corporations—to the sidelines and dramatically slowed existing transactions. The landscape yielded a dearth of profitable deals, with any residual motivation for investment in mid-sized firms deflated by a lack of attractive exit strategies and the downward trending of IPOs. It seemed the very engine of the mergers and acquisitions sector had ground to a halt.

However, that evolving landscape has also created a shift in power, placing a new breed of M&A players in a rare position of strength. As traditional investment firms have hesitated to participate in smaller transactions, a cutting-edge class of strategic acquirers emerges: small to mid-sized businesses. Though not generally cast in the role of strategic acquirer, the current economic conditions have proffered a “limited time only” channel for these companies to accelerate their business.

To capitalize on this significant advantage before private equity makes a full return, small business executives should examine whether a well-structured deal makes sense in the context of their goals. Even those companies that would not typically consider strategic acquisitions should weigh the option as an area for improvement and proactive growth. Business leaders should take three steps to make the most out of their potential:

Take a fresh look in the mirror: Regardless of previous strategic goals, companies that have reasonable liquidity, resources, or access to credit should reflect on their potential as a buyer. The shift in the balance of the M&A market is too auspicious a change to let pass without sufficient review. This is a rare opportunity for forward-thinking leaders to establish a new stronghold and gain significant ground on the competition.

Business leaders should therefore consider what could be gained through an acquisition. Is there, for example:

• a competitor’s talent pool that is well recognized, trained, and ready to make an immediate contribution

• a drop-in sales channel or product line that expands revenue streams

• an operational structure that is better suited to drive aggressive growth.

A finely tuned, well-aligned deal can vault a company ahead of the competition, even if the previous plan had been only for organic growth. Adapting to changing landscapes is part of what sets a business apart, and a decision to pursue sensible growth under unique terms must be made with agility and foresight.

Keep risk in check: Even the most synergistic of deals comes with associated risk. Effectively mitigating that risk is an essential element of a sound acquisition and can be managed through … Next Page »

William is a partner at MFA - Moody, Famiglietti & Andronico Follow @

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