Changes in the business environment?
Enrique Quemada
Chairman at ONEtoONE Corporate Finance Group (International M&A Advisory in 50+ Cities and Management of Private Equity Funds). YPO. OPM. Harvard Business School
It is common for new laws to cause a lot of stress for companies. In many cases, the business owners can foresee the change coming because they are also operating in other countries that have already gone through a similar process. They can take the initiative and sell before this causes a crisis.
Other times, a regulatory change that requires a strong investment creates a need for external capital because the internal cash flow generation is not enough. For example, increased demand due to new client bases requires important investments that the business cannot afford because of its size or growth path.
This situation happened to us with a client in the chicken farming sector. A new animal protection legislation required an increase in the standard of living of the hens, which meant important capital requirements. Our client was not willing to risk his own capital for the needed investments and was fearful of debt fearing the free cash flow produced by his business would not able to pay it. After we analysed and discussed the alternatives, the client decided to sell. We had a Dutch group and an Italian group bidding each other out. It was the Dutch group who eventually won the bid for the company.
One way to survive and maintain the value of the assets (clients, brand, products, technology, etc.) is to merge into a larger group. Many business owners wait until it is too late. They don′t want to recognise how critical the change is.
If you want your company to survive when there is a critical change in your business environment, react with urgency because the finding of a good buyer and all the negotiation process will take time.
@EnriqueQuemada