Acquisition mania

The great ‘market share’ grab is about to begin. It is slowly dawning on businesses that even though confidence is high, economic conditions are not going to return to boom times for years.

With the GFC forcing prices to remain in check, company boards are realising that business growth is going to come from two things: innovation and stealing market share from competitors.

Now many companies are traditionally not very good at innovation. And at the moment the bean counters are still in charge, stifling ideas and watching every cent.

So the one alternative is to “buy growth”. And the experts are reporting that that type of activity has heated up just in the last month. Paul Hauck, who runs ITC Strategic Services says he has seen a big pick up in acquisition activity in the ITC space.

“We have seen a huge spike in buyer-driven offers being lobbed onto relatively unsuspecting potential vendors. We have had six requests for advice (formal or informal) during a 10-day period in September,” he says.

Hauck says potential buyers are hoping to get a deal done on preferential terms while there’s still some pessimism around the marketplace.

“The offers we’ve reviewed look to be pitched at more-or-less fair value, but with no premium or upside, and I suspect that a couple that I have not seen are somewhat less flattering.”

Marc Pesket, who runs MPR Group advising high growth SMEs says it is the larger companies snapping up small businesses. He says they are aiming at the businesses that have proved hard to sell and are getting good deals.

One of the reasons for the sudden flurry of activity, says PriceWaterhouseCoopers partner, Greg Will, is people don’t want to feel they are missing the boat. “Business valuations are 30-40% lower than the market high. It’s a good strategy. Organic growth for the next 12-18 months will be hard. Many businesses will not be able to grow as fast as they want. If they have a strong balance sheet and finances are in place, why not take out some competitors?”

The flurry is also being driven by some private equity players who are returning to the market. Some are wanting to exit investments and are back in the market looking to reinvest.

Investment banks have also been helping large listed companies refinance – which is mainly why investment bankers’ salaries are going through the roof – again.

So all in all the conditions are right for a mini merger and acquisition boom. Entrepreneurs might want to recast business plans in light of this. They may want to prepare for sale or join the fun and snap up a bargain. But all entrepreneurs should watch the marketplace carefully to ensure they are not caught out by the emergence of a mega firm.