* * *
What's interesting about buyers such as McDonnell, of course, isn't just their objectives -- it's their effect on the marketplace. With so many buyers and sellers out looking for deals, a host of new constraints and opportunities present themselves to business owners.
Point one: companies -- all companies -- will be regarded more and more as liquid assets, capable of being bought, sold, or combined in any number of ways. You want to sell out? There'll be plenty of buyers, even if you run a service business. (See "Are Service Companies Different?," page 5) You want your business to grow? Think of your company not as an immutable institution but as a collection of skills and assets, then perform the appropriate strategic calculations. Maybe a segment of the business can be spun off, and the proceeds used to acquire a competitor in your company's primary industry.
Or maybe you can engineer the kind of merger that makes the whole more than the sum of its parts. Tim Herman, owner of a $1-million manufacturing company called Airprotek Inc., saw his business stagnating; it wasn't big enough to compete effectively, and Herman didn't have the money to help it grow. But one of his competitors, he knew, was in the same boat. And that company had products complementary to Airprotek's.
So Herman and his erstwhile competitor merged, with each getting equity in a new -- and considerably more valuable -- business. "We double the size of the company and double the size of the product line," says Herman. "My share of the new company is worth more than my 100% ownership of the old one."
Point two: the owner who decides to buy, sell, or merge will find plenty of knowledgeable experts to turn to for advice. Until the 1980s the smallest companies were sold by local business brokers or by word of mouth, and the largest were handled by Wall Street. Everyone else had to depend on a catch-as-catch-can marketplace. Maybe a buyer could be found through industry contacts. Maybe a local accountant or lawyer knew enough to engineer the transaction.
Today any number of advisers and middle-market investment bankers are doing a thriving business helping entrepreneurs design and consummate deals. "Five or 10 years ago there was no one like us to handle a [middle-market] transaction here in Houston," says John W. Adams, executive vice-president of Windham Capital, investment bankers. "Firms like ours add another level of experience and sophistication to buying and selling." These experts have effectively expanded the marketplace as well. Networks such as the Chicago-based Intermac (the International Association of Merger and Acquisition Consultants) maintain international databases of prospective buyers and sellers. So do some of the giants that have recently carved out a foothold in the industry, such as Merrill Lynch's Business Brokerage and Valuation unit.
Finally, even if you yourself never expect to buy or sell, consider the effect of everyone else's buying and selling on the competitive landscape. Not to put too fine a point on it, there aren't any safe niches anymore.
During the 1980s the most aggressive and shrewd businesspeople often set out to start their own companies. They typically went into high tech or into other brand-new industries in which they could develop a market of their own. And today? Well, Steve McDonnell has charged into the smoked-meats business -- an industry that until recently still dealt largely in cash. John Vinton wants to buy an established consumer-goods company. John Thorbeck, of Timberland and Bass, bought an old-line shoe manufacturer. Company owners who find themselves up against such high-powered entrepreneurs will also find the competition has been cranked up a few notches.
So it might be wise to look around -- at your company, your industry, the marketplace you do business in -- and ask yourself where, among all those seemingly sleepy companies, the entrepreneurial opportunities lie. Because it's a safe bet that, sometime soon, the new breed of business buyers are going to come looking. When they do, you may wish you had gotten there first.
BUYOUT ENTREPRENEURS
Phillip H. Harris, 47
Career Highlights : Xerox, 14 Years; Wang, 5 Years
Ideal Acquisition: An industrial products distributor or light manufacturer that needs sales and marketing expertise, with at least $10 million in sales
Would Look At: Any industrial products company ("I don't know anything about consumer goods")
Willing To Pay: Up to five times earnings before interest and taxes
Primary Source of Equity: Hambro International Venture Fund
Opportunity Spotted: "A lot of low-tech companies aren't well managed and don't understand marketing. They don't employ multiple distribution channels or costing methods that allow them to look at profits by channel. Most of the owners don't even have a computer on their desks. Good management, marketing, systems -- that's the value I can bring."
Dorothy Serdenis, 45
Career Highlights: Municipal government, 10 years; Merrill Lynch, 10 years
Ideal Acquisition: "Anything really -- provided the challenges were interesting and the personal chemistry was right."
Would Look At: Retail businesses; manufacturers of retail products with $50 million in sales
Willing To Pay: Up to $10 million
