As someone who has worked on hundreds of transactions over the last 50 years, I find that business owners today have a much more difficult time in assessing when to do a transaction. Early on in my career a middle-market company was probably impacted by the economy in its local region. We moved from a regional economy to a national economy, and today we are operating in a global economy. A typical middle-market business owner has to deal with controllable factors – those issues they can directly influence or direct in the management of their business. Then, there are the uncontrollable factors from an economic standpoint that can either benefit their business or damage it; but, either way the business owner has no control.
You don’t have to be an economist, but be aware.
The key in being successful today is to not only manage the controllable factors but also be aware of what is happening from an economic standpoint on a national and global basis. It doesn’t mean that as a business owner you have to become an economist. It does mean, however, that you should keep yourself up-to-date as to what is happening in the financial markets. At a minimum, identify a mentor or counselor who is financially astute and can help guide you.
The global marketplace we are in today is a perfect example. A few years ago, Brazil, Russia, India and China (the “BRIC” countries) were all growing and were set to be real drivers of the global economy. None of these economies are performing very well today. China’s slowdown is dramatic. Shanghai’s stock market is now down 15% in the New Year and has affected stocks, commodities and currencies around the world, pushing U.S. stocks to their worst opening week in history.
Very simply, 2016 is likely going to be a very unsettled year. When things are unsettled and people do not feel secure, it affects the business community from a psychological standpoint and we end up with a lot of hand wringing and concern about where the economy is going, whether it is going to recover or are we going to go crashing into a new recession. You can probably find an economist to support any point of view you come up with.
The key for middle-market business owners is to deal with the controllable factors and manage their business to the best of their ability. While we have a world in an economic malaise, there are also a variety of fairly positive factors in the U.S. There is a lot of money on the sidelines, both with financial and strategic acquirers. Money is cheap, banks are lending and multiples on deals are running quite high.
Remain open to opportunity.
So, the key as a business owner is not to let the world’s economic problems impact on your psyche and decision-making. In fact, it is a wonderful time to do a deal. Fewer companies are coming to market and when a good company comes its price gets bid up considerably. There is unquestionably a real opportunity to raise capital, take some chips off the table or sell your business outright. While 2016 is going to be economically unsettled, it is an optimal year to do a transaction. If the doomsday predictors are accurate that we are heading for a real problem in the future, you are better off doing a transaction now because if they are correct, there won’t be any deals to do.
ABOUT THE AUTHOR: David J. Mahmood is Chairman and Founder of Allegiance Capital Corporation a middle-market investment banking firm that works exclusively with privately-held and closely-held companies. Before becoming an investment banker, Mr. Mahmood started seven companies from scratch. He has a real appreciation for what it takes to meet Friday’s payroll, next month’s bank payment, interview, select, hire and train the personnel necessary to build an organization. He has been exceedingly successful in helping business owners maximize value.