M&A Activity: The Invisible 'Tuck-in' Deals
"There also remains a strong market for tuck-in opportunities," he says. "These are smart, low-risk opportunities for a buyer to fill up his/her existing capacity by purchasing a book of business. From the seller's perspective, this structure is not as attractive as all-cash at closing, but it at least enables the seller to get more than liquidation value for a struggling business. Depending upon a company's specialty, size and profitability (or lack thereof), this may still be the only option for a seller."
Buyers like being able to pick and choose from the available equipment, he notes, and paying for revenues successfully transitioned, while sellers find the royalty rate alone makes it more attractive than an outright liquidation. It can protect the jobs of many employees, while enabling the seller to get a higher price if revenues return to normal levels, he points out.
Schaefer admonishes prospective sellers to not halt investments in their companies, and points out that buyers will rightfully reduce their offer if there is a need for material capital expenditures. "It's critical for a seller to continue running the business as if a transaction isn't going to happen until the day of closing," he adds. "This is a distracting process and an owner cannot afford to be marginalized if a transaction doesn't occur." PI