Trio Business Intermediaries Blog

It seems that the big banks are calling all the tunes in business transactions right now.

 

We hear from all quarters that the main financiers are making it very tough to get finance for business acquisitions and that their requirements are changing on a daily basis.  And this at the time when many entrepreneurs are seeing opportunity all around, believing there hasn’t been a better time to buy.

 

Some suggestions from Trio as we sit between all the parties:

-  Buyers make sure you are very clear about your prospective financier’s current lending requirements before you delve too deeply into a potential acquisition.  Don’t assume what would have worked 6 – 8 months ago will get past the banks today

-  Sellers think about the possibility of vendor finance – sure it’s not ideal but if it bridges the gap created by the GFC then it’s worth serious consideration

-  Buyers and sellers clarify the situation on valuation of hard assets within the business.  What are the bank’s current valuation policies and discount rates?  What does an independent valuation throw up?

 

If you know a finance good-news story drop us a line and we’ll spread the word

 

Those investors seeing great opportunities in this challenging environment are still doing deals.  Is the due diligence process any more difficult or important in these tough times?

 

We say the short answer is NO

 

Yes there might be an inclination for sellers to, say, divert attention away from a downturn in sales and profitability but the risks aren’t so much more overstated now as they have always been.

 

It is, and always will be, important to look around every corner and under every customer list to make sure the due diligence process addresses all the potential risks – not just the ones with a $ in front of them.

 

Up to date and accurate debtor payment terms might be something to take a thorough look at – especially if that type of information had been provided many months before at the initial investigation stage.

 

On the flip side though, it could be that the current management have reacted to slower trade by taking the paring knife to costs.  If you have a great plan to increase sales this could be a deal sweetener worth spending more time on in Due Diligence.

 

You were always going to do profit forecasts and cash flow projections right? You were also going to take a pretty thorough look at the underlying assumptions right?  Not much has changed here then either.

 

The financial stability of suppliers (so often now offshore) was important before and it’s important now.  Same old same old.

 

Bottom line = Due Diligence is always important enough to do as thoroughly as possible.

Will you be approaching this year’s budgeting and planning season differently?  April 28^th Trio’s Tips asked if you’d be changing tack.  Maybe by:

 

• Moving the cash flows to the front sheet
• Looking harder at marketing spend
• Replacing Worst-case-scenario with Most-likely-scenario
• Wages freeze / reduction
• Spending more to get closer to the customer

 

Let us know how you plan to go about your planning.

 

There are very few businesses around that are immune from the economic downturn, so most are seeing falling turnover and profitability.

 

If one of the predictors of the future performance of a business is the historical results then businesses that are seeing a steady decline in return are bound to be negatively affected if they are looking to sell the business.

 

The longer the malaise continues the worse it will get for business sellers.

 

Even before this all started we recommended to sellers they time their exit to show at least a couple of year’s good results – to demonstrate sustainability.  If your sales and profitability graphs are going north it’s all good.  If you’re on a southern trajectory reign it in or sit out the sale for a while if you can.

The global economic crisis is playing out in the warehouses, showrooms and offices of Australia’s SMEs.

 

We’re hearing from a number of business buyers who see opportunity where others see disaster.  These risk takers are looking to buy into the market at a time they perceive values to be dropping and setting themselves up for when the good times return.

 

Are you in the market to bag a bargain or are you still looking to buy a business that’s on the ascendency?  Share your experience with other business buyers here.

With official rates announced yesterday as 'steady' where does that leave business buyers looking to finance new acquisitions?  Our sources tell us that credit is still very hard to come by and banks continue to be conservative.  So whether the rate is + or - .25% is no where near as important as credit flows (though the two are of course indirectly linked).  One effect all is this is having on the way Trio does business is that we are forced to now more thoroughly quiz prospective purchaser’s on their funding capacity and how recently they tested that with their banks and brokers. Our advice to business buyers would be to keep in touch with your bank or broker as you go through the business search process.  What has your experience been in sourcing credit?

How long do you think the downturn will last?

Trio's recent reading on this topic suggests 2009 will be tough for most sectors.

What are your thoughts? Has your business seen real decline or do you think it's just hype?