John Martinka's Blog

In a response to my recent memo on acquisition lending, my friend Gregory Kovsky with IBA in Bellevue, WA, wrote me the following.

…the lending community is putting a greater emphasis on relevant experience in the loan approval process than I have seen in my seventeen years as a business broker.  I have seen several buyers with excellent executive experience turned down despite a 25% capital injection and a business acquisition that pencils satisfactorily from a debt service standpoint because the buyer’s experience does not dovetail with their potential acquisition.

Gregory is right, there is more scrutiny paid to experience these days. In fact, one of my clients had a bank not even look at a deal because he didn’t have direct industry experience (the seller was semi-retired and working part-time doing administrative work).

When discussing a management buyout recently, I told the owner the following three things:

1. You have a unique business and the skills needed to buy and price your product are crucial. Those skills require industry knowledge and years of experience.
2. A bank won’t lend to a buyer of your business if they are without direct industry experience. Since you will be financing part of the deal, why would you lend to a buyer without the proper experience?
3. The only real option you have is to sell to your managers.

Lending is all about getting paid back. If a banker feels a business buyer’s experience is inappropriate they won’t make the loan. The good news is, there are a lot of companies that need an owner with solid management and leadership skills, not specific technical skills.

“In any two days, human beings create as much information online as it took our species to create in the 30,000 years between the dawn of cave painting and the year 2003. In another 10 years, that same amount of information will be generated in less than one hour.”Reuters.com

Content = Marketing

When I started sending a monthly e-newsletter in January of 2000 I never gave thought to the fact that I would still be sending it 12 years later. The fact is, there are more newsletters, memos, blog posts, audios and videos than anyone can imagine. It’s for one reason; there’s a need and a demand for it.

Marketing in the 2010-decade is, more than ever, centered on content. This content is also your intellectual property (IP). IP has always been the way for people to demonstrate their expertise, smarts, creativity and competence. Up until 12-15 years ago it was tough to easily get your IP to a lot of people. Unless you were lucky enough to have access to radio or television programming you shared your content via print. It was a hard copy newsletter, articles, columns or letters to the editor in a magazine or newspaper and by authoring a book (all of which are still very effective).

How much is enough?

Is there too much information? Sometimes is the best answer. What might be a better question is, “Is there too much incorrect information?” and the answer is yes. It is just too easy for anybody to put his or her opinion out to the masses. This means we often have to sift through a lot of junk to find value.

The September 2011 issue of Mergers & Acquisitions (published by ACG) had an article that stated it is not the lenders who are holding up activity in the small deal space. They wrote that banks were out of the market for quite awhile (who could blame them in 2009?) and have a pent up demand.

Another factor is that there just aren’t that many loans to make (transaction and other types) so every potential deal is a priority. Of course, it has to be a good deal meaning stability, growth and adequate debt coverage (profit to debt payment ratio).

When I hear people say that banks won’t lend or, better yet, that it has to be a really good deal to get a loan, I smile and move on. Of course it has to be a really good deal because banks are in business to get paid back. I own stock in a community bank and I like it when they make good loans.

The biggest factor that will translate into more deals is for buyers and sellers to both realize three things:

1. The current economy is what we will have for a few years. Don’t sit back waiting to ride the recovery wave.
2. There aren’t as many buyers as one would expect in a down and turbulent economy. So, take what you can and take action.
3. Banks will lend money for a good buy-sell transaction. It is not the banks holding down the activity.