Hunger for Acquisitions May Be Short-Lived Like the lion that eats large meals, but infrequently, a company’s hunger for acquisitions can change drastically over a short period of time. While there are many companies that are consistently interested in making acquisitions, there are also many others whose appetites are much more erratic. These different approaches to acquisitions have to be taken into account by those seeking to divest. Is a potential buyer a "lion"? If so, are they hungry? Or are they resting after a big meal? In the article that follows, we will explore these contrasting acquisition styles from both the seller’s and the buyer’s perspectives. Hunger For Acquisitions May Be Short-Lived There have always been a large number of companies and firms seeking acquisitions in the chemical industry. Within this group of potential buyers however, there are a variety of styles and rationales for seeking acquisitions. Many companies seek acquisitions on a consistent basis over a long period of time. Many others have a more irregular appetite for acquisitions. This appetite may be very strong at one point in time and at another point, the appetite may wane or be nonexistent. It is this second category of company that we will explore below. Why A Company’s Hunger For Acquisitions Changes 1. The Acquire/Digest Cycle – One of the most common reasons why a company may be actively seeking acquisitions one day and then becomes disinterested the next is that it has recently made an acquisition and needs to digest what it has bought. If a company has reached its acquisition objectives, it obviously will have a much lower appetite for additional acquisitions. In addition, after an acquisition is made, the real work begins. The job of integrating an acquired business into an existing company is a very important one, requiring considerable time and effort. Looking for additional acquisitions after one has recently been made may be too much for a company to be doing at one time. On the other hand, if a company has not made an acquisition in a long time, the hunger may be very strong. 2. People Change – There is considerable turnover in the executive ranks of the chemical industry. A new CEO or high level manager very often will make changes in the organization he or she is running. When a new executive arrives on the scene, one thing is for certain – changes will be made. A change in acquisition strategy may be in the offing. 3. Business Conditions Change – A change in business conditions, whether good or bad, may have a direct bearing on a company’s appetite for acquisitions. A public chemical company whose business is strong and whose stock is selling at a high multiple may have an increased desire to acquire, through the issuance of stock or cash. On the other hand, when times are tough and a business is facing difficulties, the desire for acquisitions may diminish. Case in Point A $100+ million chemical company had been seeking acquisitions for the last 3 years. It is now having financial problems and has decided to seek to sell at least a part of, and possibly all, of its business. 4. Its Too Time-Consuming/Too Hard to Succeed – A company may give up the hunt for acquisitions because it has determined that it is too difficult or time consuming to make an acquisition at what it feels is a reasonable price. In these days of high multiples, there are many companies that decide not to participate in what they feel is a climate of too many buyers chasing too few sellers. While there are always acquisitions to be made at lower multiples and not involving auctions, finding these prospects invariably take a lot of time and effort, and there will be a lot of misses. For companies that do not want to take this route, the hunt can come to an end without ever making an acquisition. (P.S. – this is not necessarily bad!) Implications for Sellers and Buyers For Sellers – Sellers need to understand as much as possible which companies are seeking acquisitions and why. They need to understand that for some potential buyers, a high level of interest today may not last. Conversely, a low level of interest in the past may give way to a strong hunger in the future. The acquisition climate in the chemical industry can be very fluid from one company to the next. For Buyers – For those who have a strong desire to make acquisitions, a word of caution is in order. Lions are not fussy eaters. They eat what they kill, what other predators kill, or animals that just die. Care must be taken that an acquisition is made for the right reason and at a reasonable price. Gorging can lead to indigestion.