Business investor sees signs of change for the better

Business investor sees signs of change for the better

Not long ago, if you were interested in acquiring another company you could scan past earnings, check the balance sheet and be nearly ready to pull the trigger.

Thanks to the nosedive of the credit markets and a global financial shift, the game is no longer played that way.

"Market assumptions have changed," says Harman (this name has been corrected) "Jet" Wales, co-founder and managing director of Moss Adams Capital in Seattle.

Wales will be among the featured speakers at Moss Adams' annual business seminar Tuesday afternoon at EdenVale Winery on Voorhies Road. Registration for the event is closed.

"During the four or five years when the elevator was moving up for everyone in the economy, there was an active market for the sale of businesses. Credit was readily available to support the purchase of business and hence values were at a premium from what people had seen in earlier years."

Then mergers and acquisitions came to a screeching halt.

"It's been a challenging 18 months," Wales says. "It came to a full-stop in the fourth quarter of 2008 and it's just starting to come to life again. There may be a new horizon in the future compared to the landscape of the past for mergers and acquisitions. We have not returned to where it used to be, and it may not get there again. But there is a bright spot for business owners wanting to sell and an opportunity for buyers as well."

Wales says the final six months of 2009 are seeing re-emerging activity as confidence returns for business growth. Energy services, health services, parts of the technology sector, food staples and basic food stuffs are leading the way.

"We starting to see more confidence in the plans for future business growth," Wales says. "We're seeing owners with a little more confidence about where growth opportunities are. Banks are more willing to provided capital to some of these businesses. It's happening more slowly and happening sector by sector."

Both companies seeking strategic partners — firms involved in the same or adjacent industries — and financial buyers — looking for companies capable of producing a specific return — are available, Wales says.

But the process will be longer than the past and buyers will be looking at the transactions more thoroughly and from a different perspective.

"Buyers are more cautious and taking longer to evaluate the assumptions, taking longer to raise capital and taking longer during due diligence," Wales says. "In the past, you could look at a company's growth rate. If it was 10 percent a year over the previous three years, you could assume it would grow 10 percent the next three years.

"Now buyers have to evaluate individual customers, have to decide what product they are selling and the likelihood their products will sell in the market. Then they have to trace back to see how much they need of our product and how much inventory has been built up in the supply chain and when will the supply chain need to be replenished and how much of our product will be needed to supply that?"

Reach reporter Greg Stiles at 776-4463 or e-mail

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