Going on the front foot in times of recession buy buy and buy!
Many of our clients do consider it good business to think about purchasing shares and or assets of a third party. When times are hard a bargain can be had! Experts define the way in acquiring a business in one of three ways 1) horizontally that is the new purchase compliments your existing business secondly by vertical means ie you acquire a supplier or distributor and thirdly diversify ie you move into new markets altogether. Once you have found a target you need to assess its value. There are four common methods. 1. Discounted cash flows. 2. Dividend yields. 3. Net Asset valuations and 4 Market multiples. There is no hard and fast rule. Often value does not equate to the price involved.
When purchasing the shares it is usallly the case that the shars are bought on a “cash free, debt free basis”. The buyer will therefore assume that there is no cash or debt in the selling company. The reasons to sell the business are often involuntary ie the pressure to maintain the business, often they are voluntary i.e. we have taken the business as far as we can go. From a buyer’s perspective the key question is shares, assets or both?