3 min read
Confidence is rising with the expectation that the economy will soon return to sustained growth as the lockdown continues to ease, however, the longer-term recovery prospects remain highly uncertain. Some of the recent gains in markets reflect short-term bounces as businesses returned to work, but demand remains weak. Many COVID-19 restrictions and social distancing measures will also need to stay in place until an effective treatment or vaccine is available, curbing demand.
One might be forgiven for thinking you cannot buy or sell companies or make investments but on the contrary in negative growth markets or at best stagflation economies mergers and acquisitions deals are more critical especially in ‘blue oceans’. That is markets where long term growth can be reasonably supposed, and margin protected without intense competitive factors.
CEO’s may be tempted to batten down the hatches but instead the opposite applies so long as leverage debt is managed carefully and buying out the right companies is critical. We must emphasis the ‘right’ businesses. We recently worked with a PLC manufacturer with declining margins acquire several service companies in a new sector with both recurring revenue and a growing demand, a blue ocean. This same business has just agreed a value play with another manufacturer to acquire a division. This, however, is a race to the bottom. Yes, it creates a scale, but it does not strategically add value. The danger is they lose momentum in the blue ocean and get stuck. We have advised them, but the value play may prove to be too tempting.
The right deals
- Deliver yield where other asset classes fail, by bringing ‘also ran’ independents into groups with the ability to cross-sell and enhance economies of scale.
- Create market shifts with both access to new products, people, and territories.
- Accelerate business model changes ahead of market dynamics rather than chasing it.
- Positively disrupt with organisations gaining ‘know-how’ to shift markets.
As ever with acquisitions, where is the advantage? The player who thinks several moves ahead invariably wins and careful research into which areas truly are the undiscovered blue oceans can pay dividends. Of course, everyone is looking for these hidden oceans, but a great tip is to look for a niche business within a niche sector that is growing without much effort ahead of its demographic. This takes time and resource, but the effort is normally always rewarded in the right transactions.
Avondale is launching a scale to sell Board Group we also offer one to one consultation to help you understand current valuations, value builder options or the best exit strategy options.
For an exploratory discussion without obligation, please contact us on +44 (0)1737 240888 or email email@example.com.
We have launched our ‘Lead Ahead’ Webinar Series in line with our weekly articles. Join our ‘Selling a business during Covid-19 – 9 Things you can do to prepare’ webinar on 6th August 2020, 9.30 to 10.30 (BST).
For information on other webinars within the series, visit our Webinars & Events page.