• Education services and for-profit education. In a time of high unemployment, many workers retrain or get more education, to make themselves more marketable.

• Defense and homeland security, a category that includes border security, immigration control, and surveillance.

• Infrastructure, to fix or upgrade roads and bridges, and in response to the Federal stimulus package.

• Food. Even in this economy, everyone eats.

• Nutritional products, yoga, pilates, health clubs, and social networking tools. Consumers are willing to spend in order to feel good, D’Aquila says. “They say, ‘I can’t control the world around me, but I can control myself.’” And if these products and experiences help customers look better or make and maintain connections, that may also help them succeed in the job market.

• Escapism. “I can turn on a movie for 99 cents and get lost for two and a half hours,” D’Aquila says. “Customers see bad news all around and want to escape that.”

• Energy. “That continues to be a robust M&A marketplace, with a real focus on alternative energy,” D’Aquila says.

• Outplacement and executive coaching services.


Eventually, of course, the economy will come back, and bring the mergers and acquisitions market with it. “There will be a lot of demand after the debt financing returns,” Engler says. “There’s a lot of private equity money out there, and many strategic buyers will also come out of the woodwork once things get better.”

That improvement, however, probably won’t come soon. “I don’t think anybody has much confidence in their numbers for 2009. People are going to let things settle for a while,” Engler says.

 

The New Deal

No matter who the buyer is, they’ll likely find better deal terms in this market than in the seller’s market that preceded it.

The indemnification process, for instance, is better for buyers. A couple of years ago, some deals were done with no post-closing indemnification. “I can’t imagine seeing a deal like that today,” says Bruce Engler, an attorney with Faegre & Benson, LLP. Deals with indemnification might have had a 5 percent to 10 percent cap on post-sale costs. “Now, it’s more like 20 to 25 percent,” he says.

Buyers will also find that seller financing is more common today than two years ago. “Usually that will be either retained equity or some deeply subordinated debt, which you’d never take if you had the choice,” Engler says. Earnouts, which are prone to post-closing disputes, are another device for bridging a valuation or financing gap. “Anybody who wants to do a deal today has to be a little more creative,” he says.

But buyers won’t find many auctions. “There’s not enough deal demand,” Engler says. “In order to have effective auctions, you need a lot of willing and motivated buyers, and you need a good property to sell. We’re not seeing a lot of those circumstances.”

—I. C.

 

This article was published originally as “Selling Singularities” in the July 2009 issue of Twin Cities Business on page 95.

« Previous Page 1 | 2 | 3 | 4