16 Oct 5 Questions with David Perkins
By JOHN STANCAVAGE Tulsa World Staff Writer
Published by the Tulsa World 10/16/2009
David Perkins is managing director of Acquisition Advisors in Tulsa. He holds a bachelor’s degree in psychology from the University of Oklahoma and an MBA from the University of Notre Dame. He completed the Mergers and Acquisitions executive education course at the University of Pennsylvania’s Wharton School and is a Registered Investment Advisor.
- What does Acquisition Advisors do? We help people put winning deals together — deals for the purchase, sale and recapitalization of midsize U.S. companies. Our focus is on deals that involve businesses with annual profits between $1 million and $25 million, which is deal sizes of $4 million to $150 million.Selling a business is complex, risky and immensely time-consuming. Ditto for buying a business. Get it right and everyone is well-served — the principals, employees, investors, bankers and the communities in which the business operates. Screw it up and value evaporates, possibly tearing apart the lives of real people like you and me.
- Does merger and acquisition activity rise or fall during a recession? Why? It crashes. For an M&A transaction to occur, someone has to sell. During a recession, the price owners can obtain for their equity in the business falls. Their desire is not to “sell low,” of course, so they wait on the sidelines until the price they can obtain is more attractive.Why do business values fall during a recession? Four main reasons. First, business profits decline, which causes prices to fall. Second, buyers lose confidence in the future. They don’t want to buy and then own a business during a prolonged recession. Third, the amount of equity in the hands of buyers shrinks. With less equity available, fewer deals can get done. Last, debt financing becomes scarce. Yes, the price of debt typically declines during a recession, but not enough to overcome the drag caused by debt scarcity and onerous terms.
- What is the state of the credit markets for buyers wanting to finance a deal? Debt financing remains available for business purchases, but lenders are just more cautious than they were a couple of years ago. Much more cautious.My firm has closed a few deals in this climate, but banks have been burned and they must operate conservatively to ensure they have enough capital to withstand any bad-debt losses they may suffer in the coming months and years.Bankers are also less willing to overlook risk factors in deals such as customer concentration, product concentration and earnings volatility.
Nobody knows how soon the economy will improve, or to what degree, so the safest thing is to be conservative.
The deals that are getting done today are reasonably priced (i.e. the price being paid for the business); have tangible assets that fully collateralize the debt; and include plenty of equity in the capital structure.
- What’s the hardest part about helping people buy and sell businesses? Watching or hearing about business buyers and sellers who made mistakes that cost them substantial amounts of time, money and, often, credibility. Nothing good comes without proper preparation and hard work. Unfortunately, there’s a concept that great deals are completed by happenstance — luck. It’s, “Run your business and play some golf and answer your phone, and some day a motivated buyer with more money than sense will come along and cut you a fat check.”
- What are the biggest mistakes buyers and sellers of businesses make? For buyers, its definitely overpayment. Buyers tend to get so excited and want to become an owner so badly that they become willing to accept unfavorable terms. They rationalize around the risk factors and even close out the voices of caution. Alternatively, they should keep in mind that their goal is to make money and succeed financially over the long term — not just “become a business owner.”They should heed the words of native Tulsan and legendary deal man Henry Kravis of KKR when he says, “Any fool can buy a business. Celebrate when you sell it for a profit.”For sellers, it’s failure to understand it’s a sales process that requires finding lots of high-quality buyers and working them all at the same time. To be sure, it’s neither a part-time nor do-it-yourself project.