Foreign Competition
Although many private-equity buyers have moved to the sidelines, U.S. companies face competition from overseas. Spurred on by the dollar's weakness, many international companies are looking to expand their stateside presence through acquisitions. "Foreign buyers are saying, 'Hey, the United States is on sale,'" says attorney Horwitz of Proskauer Rose.
Some foreign companies are getting what amounts to a 10 to 20 percent discount on deals simply because of their currency's relative strength against the dollar, which has sunk to record lows against the euro in recent months. Bainbridge's Chini says he has seen numerous Indian and Chinese companies enter the market for U.S. deals, particularly in the technology and health-care sectors. Sovereign wealth funds, pools of investment capital managed by governments, could also play a role, although they typically tend to focus on large targets, according to Chini.
Tight credit, shaky markets, and new competitors notwithstanding, the current M&A market may provide companies with an opportunity to emerge from the downturn stronger than before, particularly if they focus on less-risky small and midsize deals that build on their core businesses. "There are hidden gems out there that they can get on the cheap," says Deloitte's Williams.
Finally, a silver lining.
Kate O'Sullivan is a senior writer at CFO.
Bargain Hunting
Tips for doing a deal in a down market
Look for bargains, but maintain discipline on strategic fit. In today's uncertain environment, CFOs should look to build on their core business with well-priced acquisitions of close competitors or complementary businesses, not unplanned expansions into new areas.
Do more due diligence than ever before. "In this economy, you really have to understand the health of the companies you're looking at," says Robert Filek of PricewaterhouseCoopers.
Model downside scenarios carefully. Forecast results based on a recession that lasts even longer than you expect.
Be aware of your own liquidity needs before you start pursuing deals. As the credit crisis continues to unfold, bank financing could be hard to come by.
Know your market sector. Some industries are still pricey and will require strong bids. "Some sectors are continuing to climb as if there were no credit crisis at all," says Nick Chini, managing principal at Bainbridge. — K.O'S.
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