Warren Buffet once said that investors should be “fearful when others are greedy, and greedy when others are fearful”. Now, more than ever, it’s important for business owners to get this right. Thanks to the economic mayhem that’s been caused by COVID-19, there are thousands of companies struggling to stay afloat. There are also thousands of large companies and private equity firms that are on the prowl for distressed businesses that they can scoop up for a bargain. They are being “greedy” – looking for those who are “fearful”. These companies have cash that they need to deploy and they are eager to find good companies that they can buy at a discount.

The word “greedy” is hyperbole in this situation – used here only because that’s the term Buffet used. If I were in the shoes of these large corporate and financial buyers, I would be looking for bargains too. In many situations, they are providing a tremendous service by keeping companies afloat and saving jobs. However, in my role as an Investment Banker, my job is to give the best possible guidance to my clients, the business owners who sit on the opposite side of the table and who, in many cases, are feeling tremendous pressure right now.
If you are out of options and backed into a corner, accepting a buyout offer that is lower than you would like but lets you live to fight another day may be the best course of action. It’s better to have a small piece of something than a large piece of nothing.

However, if you and your company are healthy enough and you have the option, very likely, the best thing to do for the near term will be to hold on to your business and continue to build value.  Maybe you’re not backed into a corner right now, but COVID-19 has caused you to really re-examine your priorities. Maybe you’re just worn out from the roller coaster ride and you’re looking for the exit. Now is the time to persevere, focus on building value, and start planning with your advisors. Don’t be the one who is “fearful” when others are being “greedy”. The conversations you should be having with your advisors should be about two things: 1) how can you begin to take some money off the table to reduce your risk, and 2) how can you build a specific, actionable plan to get your proverbial ducks in a row so that when conditions are better, you will be ready to go. Exiting a business well takes a great deal of work and planning. Find a good advisor and start that planning now.

In the world of mergers and acquisitions, it was a seller’s market for a very long-time, but the tables have turned and it’s very definitely a buyer’s market now.
Buyers have become much more selective because they can be. Even exceptionally well-run companies can have difficulty getting attractive offers.  You very likely receive phone calls and letters every week from suitors who want to buy your business. I urge you in the strongest possible terms, don’t go down that road. If you are in a situation where you need to sell, it is imperative (especially now) that you conduct a proper competitive process so that you can give yourself the best possible chance of a successful outcome and a reasonable value. Any time you get into a one-dimensional negotiation with a prospective buyer you have no leverage and you are at a disadvantage. In a “buyer’s market” like we’re in now, the disadvantage is even greater.

If you are in a position to make acquisitions, now can be a good time to do it. You can be the one looking for the bargains. However, be forewarned, according to Harvard Business Review, 70 to 90 percent of acquisitions fail. It’s another article for another day, but if you are going to go down the road of acquisitions, do it right. Don’t even think about it unless your core business is working very well and you have nailed down simple organic growth strategies like adding new products so well that it happens almost automatically.  Then (and only then) are acquisitions a good idea – regardless of how good of a bargain you may find. When you think about acquisitions, think in terms of a series of small ones rather than one or two big ones. The business school buzz word is “programmatic acquisitions” – which is a fancy way of saying you need to have a plan to make acquisitions repeatable. It’s better to buy 10 companies with $1M in revenue than one company with $10M in revenue because you will learn and improve with each turn of the wheel. And, if you do have a failure, it’s much easier to recover and do better the next time.

So, in short, don’t be “fearful”. If you and your business are healthy enough to stay the course, then do it. Don’t throw in the towel just yet – keep at it and continue to build value in your company – things will level out soon. On the other hand, don’t be excessively “greedy” either. If you are in a position to make acquisitions, be smart about it. Hopefully, you’ve read Good to Great by Jim Collins. (If you haven’t, do it immediately.) Now is definitely a time to be a hedgehog – steady and diligent – not a fox who runs after shiny objects.