M&A | Windows of Opportunity Close Faster Than They Open

I spent my 10-year anniversary in Indiana, closing a deal. Before you start feeling bad for my wife, let me clarify—it was my company’s anniversary.

Ten years ago, I started Cornerstone Business Services. I’d been working in the M&A industry for just a few years, but the market was booming and I had firm ideas about how a company should be run.

Little did I know how much the industry would change over the next decade, the dramatic ups and downs we were about to face.

I established Cornerstone in January 2001, and, as luck would have it, a recession hit soon afterward. First the tech bubble burst and then 9-11 shut everything down. It took awhile to recover.

By 2006 we were back on track. Banks were lending, terms were favorable, multiples strong.

But if 2001 taught me anything, it’s that windows close faster than they open. We only got to enjoy a few good years before 2008 ushered in real estate and financial disasters. Suddenly, that first recession was looking pretty darn good.

I’ve talked to lots of industry veterans—advisors with 40 years experience—and the consensus is that 2008 started the deepest and toughest market they’ve ever seen. We hit our slowest period from mid-2009 into early 2010.

We sold eight companies in 2009 and another eight in 2010. Some of these were still strong performing companies who got good values in the sale. Others were distressed operations. Our job was to quickly capture any intangible value we could before the bank shut them down.

By fourth quarter 2010, we were seeing a solid resurgence across the M&A industry. Acquisition activity significantly improved, as companies that had scrimped and saved throughout the recession finally decided to leverage those large cash reserves.

Meanwhile, sellers were trying to get out before the end of the year, when capital gains taxes were expected to go up. To our surprise, those tax advantages were extended. We expect many sellers will take advantage of this new, two-year time frame to prepare their companies for sale.

But as much relief as we’re feeling right now I must remind myself that this is, indeed, just a window. Economists tell us to expect a boom and bust economy. Things will get good, and then the window will close.

That’s bad news for sellers. It means the value of your company can plummet, literally overnight. I’m not sure what bubble will burst, but in the meantime anyone thinking about selling in the near future might consider putting a plan together now before they find themselves like those who thought about selling in 2007 only to procrastinate and have to stay in the business for several more years to get though the recession. I don’t know how long the window will stay open. But goodness knows, we could all use some fresh air.

By Scott Bushkie

Scott Bushkie is Managing Partner and Founder of DealCoach.

With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers.

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