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Article Author:

How to Approach Strategic Acquisitions During Downturns

Mark W. Robertson, CPA, CFF, CIRA, CM&AA
Practice Leader, Transaction and Lender Support Services
mrobertson@BlackmanKallick.com, 312-980-3263

Why Buy the Farm When You Can Buy the Most Productive Cow?

Values are falling and the need for liquidity is forcing the sale of businesses and assets at near fire-sale prices. Couple this with a seized-up credit market, and we have an environment where cash is king and a well-capitalized business might be well-positioned to accelerate its growth strategy or buy market share at a significant discount.

Financial guru Warren Buffet sums up this strategic viewpoint as, "Be fearful when others are greedy and be greedy when others are fearful."

It certainly looks like the world is fearful. The question is, Are you able to take advantage of this financial crisis and better position your own business for long-term success?

Start with a strategic plan.

During uncertain times, it is as important as ever to have a solid strategic plan as a road map for your business. Before you jump into the market and start buying any business or asset that seems to be a great deal, it is important to know how the transaction is going to further your strategic plan. Potential transactions should be analyzed not only for the overall value, but also for how well the acquisition achieves the desired goals of the buyer and its overall risk exposure.

Buy the pieces that fit best.

Any potential transaction also needs to be analyzed for the components of value in the target business. A strategic analysis (i.e., comparing the unique assets of the target company to your overall strategic plan) will guide you in determining what is really of value to you as the buyer. Examine all the different scenarios including the following:

• Acquiring key desirable assets (i.e., manufacturing plant, inventory or a customer list);
• Acquiring only specific assets and assuming specific liabilities (i.e., acquire the operating assets and assume liabilities related to retaining customers, key vendors and/or key employees); or
• At times, it might be better to let the business fail and then hire the key employees on the open market.

A successful transaction can be achieved in a number of ways from a merger to a purchase of the entire business or only desired assets, to an acquisition out of bankruptcy.

In fact, there might be many ways to achieve the same goal, but some structures might prove more advantageous than others.

Only fools rush in.

While the target company might look like a bargain, it is imperative to conduct a complete due diligence process to understand the risks inherent in the transaction. Even in down markets, a truly solid business does not become distressed without cause. That bargain purchase price is not such a bargain when it comes with potential problems or liabilities.

To learn more about the financial services that Blackman Kallick can provide as you work to acquire distressed businesses or assets, contact Mark Robertson at 312-980-3263 or mrobertson@BlackmanKallick.com.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.