How is the Credit Crunch affecting Smaller M&A Deals?

I get asked by potential Exiting Clients how the tighter lending environment is affecting the market for their company. I see a couple of things happening in the market place:

Deals are still getting done- Fairly priced companies under $10 million are moving nicely. It seems the smaller the deal, the less radical the lender requirement changes. However, getting deals financed is still tougher than it was a year ago and Buyers must “line up” correctly for the bank.

Private Equity has moved “Down Stream”- PEG’s (Private Equity Groups) have funds that must be employed and they are looking at smaller deals than they have historically done in the past. These smaller deals are typically easier to get funded.

Due Diligence: Slower and Pricier- Because of stricter lending requirements and Potential Buyer’s being more gun shy, due diligence can be drawn out and more expensive for both sides. This alone is a good reason to get a reputable third party appraisal and pre-financing in place. Cleaner books and records will help your business stand out and reduce transaction costs.

More Corporate Buyers- With the big company layoffs and turmoil, more middle management types are looking to leave the corporate world and build there own economic engine. While always strong, I have seen an uptick in these type buyers.

The International Buyers are Coming- There have always been foreign buyers looking for businesses in the US. However, with the strength of their home currency versus the USD, this has accelerated. I have been asked to give seminars in Canada and Great Britain to potential buyers who can also use buying a US business as a vehicle to get a visa.

You can see this is still a fine time to Exit Business Ownership. Whether the Prime Rate is 20% or 5%, the proper steps still need to be taken before your business is brought to market.

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