KUHN CAPITAL Monday, October 23, 2017
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EPrairie.com on "It's a Buyer's Market for Companies"

CHICAGO – It's a buyer's market, baby, and we're not talking homes. We're talking companies.
That, at least, is the result of a survey by local mergers and acquisition firm Kuhn Capital, which surveyed some 500 executives in the software, data and technical services fields among companies with annual sales averaging $10 million. The firm also talked with investment bankers and venture capitalists.

The study shows that about 25 percent would consider selling their company within six months, and that more than 50 percent would consider selling their company within two years. However, 62 percent of those surveyed said they would not consider buying a company within the next six months.

"We suspect," said Ryan Kuhn, principal of Kuhn Capital, "that based on our experience in the market, such attitudes are driven by two factors: the financial circumstances of the smaller respondents’ companies, and his or her appetite for continuing to work under such circumstances should they continue for another few years.

"That is, some respondents may be compelled to consider selling now in a bid for growth or even financial stability. Of course, these individuals would not likely be in a position to buy. However, they may be willing to merge with another similar entity."

As the tech economy has shaken out over the past few years, we've seen more than our fair share of mergers and acquisitions. However, says Bob Walberg of Briefing.com, this is unlikely to continue until the market stabilizes.

"I think the market needs to calm down first," he said. "As long as companies think they can buy something cheaper in a day, week or month, there's little reason to do deals. The market is also not very receptive to companies taking on increased debt right now."

Walberg indicates that although companies are willing to be sold, it's going to be a hard sell: "It's tough to find a willing buyer [right now]," he said. "If a company is desperate to sell, that's often a sign that you don't want to buy. So, we have come full circle. It's now a buyer's market."

But what are the factors that a company will look at in determining what it wants to buy? Well, the survey showed overwhelmingly that price is still the primary factor. Price is followed in the pecking order by cultural fit between the companies and ability to retain employees. The next most important factors are percentage of cash involved in the deal and the buyer's financial condition.

"For buyers, the news is good," Kuhn said. "In general, sellers seem to have a realistic perception of their company’s lower valuations (certainly compared to several years past), and since few other buyers are afoot, the competition for deals is low."

Walberg echoed that sentiment, saying that most companies will not be looking to make a purchase unless they really need a quick fix or a great deal comes along.

The participants in the study were not constrained by region.


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