What will save our economy? Deals!
It is time for buyers to get off the sidelines, it is time for sellers to reconsider their exit! At a time when “cash is King” it is time for deals to happen again!
With economic uncertainty - anyone can appreciate a buyer’s hesitancy in doing a deal or understand a seller’s trepidation in selling their company when they think its value is depressed.
Truth is, pricing multiples are about the same as 2007 – there is more cash on the sidelines than ever before. There are good deals out there to be had. It is just time for all of us to step off the ledge and invest. It is time to buy and sell businesses again. Buying a company with solid historical cash flow and growth potential will always be a good investment – certainly better than the 1% return cash is getting today or the roller coaster ride the stock market has provided. Taking your hard earned equity out of a company and reinvesting is also a solid move when the time is right…
So – let’s start doing deals. Are any bankers reading this? How about stepping up and lending again! Put some money into our economy! Stand behind a deal and take a calculated risk on a loan that is not fully secured with collateral. Do SBA loans – provide lines of credit! Is there anyone who wants to say yes and make some real money by providing capital to good businesses?
Let’s look at the effect of a deal on our local economy: Joe buys Amy’s business. Doug is the Broker. Joe takes some of his savings and applies it to the down payment and a Bank funds the remainder of the deal with an SBA Loan and a small seller note. Joe works hard and grows the business – adds 4 new positions to his firm creating jobs locally. His vendors grow and add jobs. Amy is ready for a new challenge. Before investing in a new business, she buys a new car to replace the company vehicle she was driving and takes her family on a much deserved vacation. The salesman at the car dealer makes his bonus and takes his family to the beach for a long weekend. While vacationing they spend money at restaurants, etc.– helping grow those businesses…meanwhile the salespeople who sell to Joe are so busy they hit their bonuses. One of them buys a home theater – that salesman makes a bonus and so on down the line. The Broker, Doug, earns a commission – the firm spends more money marketing and grows by adding positions. Doug uses some of his new cash and has work done on his home, creating work for a contractor…and so on and so on and so on…
All because a deal closed. Joe worked hard as he always has – but this time for himself. Amy cashed out and invested some funds towards retirement and kid’s college….a bank loaned the money and got fees / interest – creating cash flow to lend more.
So let’s get off the sidelines and start doing more deals – everyone will win.
Written by Kevin Freeman, Managing Partner