M&A Activity: The Invisible 'Tuck-in' Deals
Cohen cautions that one mistake an owner sometimes commits is running the company as if he/she is going to sell it. Delaying capex, new technology and not reinvesting profits back in the business are tell-tale signs. Another mistake Cohen sees is growing top-line sales at the expense of profit margin, either through lowering prices or overpaying for tuck-in acquisitions.
"Another common mistake is entering the market to sell your business with unrealistic expectations relating to pricing," he notes. "Not only will this lead to disappointment, but it is very disruptive to any business to be on the market for a long period of time—especially if it doesn't have a happy ending."
One development in recent years has been the emphasis on infrastructure assets, according to John Hyde, senior vice president of the National Association for Printing Leadership (NAPL), who heads the association's mergers and acquisitions advisory team. He cites the example of acquiring a company that is geographically "just far enough" and "just close enough" to warrant a partial consolidation. "The concept is that the target would be viable financially on its own and it would also feed the mother ship," he remarks.
Hyde has witnessed an uptick in "healthy" M&A where there is sufficient cash at closing to make it worthwhile for shareholders, not just for the seller's creditors. It's a trend that goes back to 2011, though he stops short of saying there is a robust market for entities sold as a going concern.
Hyde notes there are many family-owned businesses still dominating the landscape, companies that face unique challenges as they seek to transition ownership. It's not unusual for firms to suffer from poor communication between family members and business partners, which can lead to missed opportunities.
New Direction Partners, an M&A advisory firm, has witnessed a "fairly robust" M&A market in the past 12 months, notes Peter Schaefer, partner. He's seen an increase in buyers willing to pay cash for healthy businesses, a welcome diversion from the recent period when buyers were highly risk adverse and fearful of overpaying in an economy that could bottom out further. Those concerns have been allayed.