Finding Inexpensive Acquisitions is Difficult in Today's Market An acquisition strategy based on buying at a low price is one that is not uncommon in the chemical industry. In fact, it is one that has been employed successfully on numerous occasions by many companies over the years. In light of today’s high-priced market for acquisition candidates however, "bottom feeders" are finding it more difficult to find good deals. This is not to say though that there are no deals out there that are right for the company with this type of strategy. There are……and always will be. It just is tougher to find them. In the article that follows, we will explore some of the ways the company seeking low-priced deals can succeed in today’s high-priced environment. Finding The Inexpensive Acquisition With the stock market at historic highs and chemical companies selling at historic highs as well, there is a shortage of acquisition candidates that can be bought inexpensively. For those companies who are seeking acquisitions but who don’t want to compete when prices are at such high levels, there are still deals to be made. Some guidelines for those seeking the inexpensive deal: 1. Forget auctions. Acquisition candidates that are attractive, widely known to be for sale and which are being sold via an auction involving a large number of interested buyers invariably command premium prices. For those seeking inexpensive acquisitions, these situations are almost always a waste of time and effort. 2. Keep an eye out for deals that fall through. Many deals that you read or hear about have not actually closed yet. If you can look at an acquisition candidate after a prior deal has fallen through, there may be an opportunity to buy it at an attractive price. In these types of situations, the seller may be weary of the sales process and more eager to sell than before. 3. Look for deals that have a lot of warts. The flip side of the auction is the acquisition candidate that is unattractive, for any number of reasons. If the factors that make a candidate unattractive to most potential buyers are not as much of a problem to you, there may be a deal to be made. While attractive businesses command premiums, unattractive ones are often sold at a discount to real value. 4. Look for big companies selling relatively small businesses. A big company selling a small business is very often not motivated by price. When a company decides to sell a business that is not "core" for example, there is usually no turning back from the decision to divest. While price is important, the business will be sold no matter what. 5. Look outside the U.S. The multiples being paid today for U.S. businesses are very high. Deals in other areas of the work however, can be relative bargains by comparison. Because of the crisis in Asia, for example, many acquisitions there are not high-priced. 6. Look at cyclical businesses when times are bad. A significant part of the chemical industry is cyclical. Very often the timing of an acquisition of a cyclical business is the most important factor that determines whether the deal is a success for failure. If you can buy at the bottom of the cycle, chances are better that the acquisition will be a successful one over the long term. 7. Smaller is cheaper. All other things being equal, there is usually a significant difference in relative values between large businesses and small businesses. Many of the companies that are willing to pay premium prices do not consider businesses that are small, regardless of how attractive they may be. If a business is too small to be on the radar screens of many potential buyers, it will usually not command the premiums often seen today. 8. Look for businesses that are not "for sale." In some cases, because of relationships or some other factor, a potential buyer may be able to discuss an acquisition with a company that is not actively seeking to sell. In doing this, and negotiating on an exclusive basis or at least without an auction process, a business may be able to be acquired at a lower price. 9. Be there first when a decision to sell is being made or contemplated. It is possible in some cases to convince a seller who is contemplating a sale or has decided to sell to forgo the "auction" route, at least for a short period of time, and negotiate an inexpensive deal on an exclusive basis. 10. Be patient. Finding the right acquisition under any circumstance is a time-consuming and often frustrating process, even for those willing to pay premium prices for attractive businesses. For those seeking inexpensive acquisitions, the time and frustrations involved multiply. Patience and perseverance are essential.