Home Industry News Mergers & Acquisitions: The Usual Suspects – Part 3

Mergers & Acquisitions: The Usual Suspects – Part 3


Cons of doing a deal with financial buyers:
1. A leveraged balance sheet. Private equity groups use leverage to improve returns, to varying degrees. Leverage in cyclical industries is risky and often these industry consolidators/hybrids have a lot of it.

2. Once hybrids are done buying, the door can slam shut pretty quickly. Our recommendation: take their money while it is available.

3. Hybrids have “their way of doing things,” which can hurt you in terms of structure, terms and timing.

4. These companies know they are the best option for sellers (and sometimes the only option) in terms of risk, because they are the most likely to make it to the finish line. Expect their offers to reflect this.

5. Short investment horizon. The hybrid group you sell to today will likely transact themselves, and have a different ownership dynamic in a few years.

When hybrids are buying, you’re likely getting calls from them, or folks who have been hired to call, fax or email you on their behalf. You will likely see or meet them at conferences where they’re attending to tell their story, drum up deals, meet with prospective targets, executives, etc. While we advise clients to avoid consummating a deal one-on-one with anyone, we do recommend accepting the overture if a hybrid comes calling. You’ll collect information and hopefully generate rapport, which will come in useful down the road. If you like what you hear and are interested in pursuing further—consult with a M&A advisor to discuss the sale process and how to keep them honest.