Study finds private companies plan to sell

By Staff -- Industrial Distribution, 7/1/2000

Rochelle Park, N.J.-A study of merger and acquisition activity among privately held companies finds that two-thirds of the owners plan to sell their companies within five years and that the majority of these plan to make an acquisition prior to the sale.

Thirty-six percent of the owners expect to make an acquisition within 12 months; an additional 30 percent expect to make an acquisition prior to the sale.

The annual mergers and acquisitions study, which surveyed owners of 211 privately held companies with revenues from less than $5 million to more than $100 million, was conducted during the first quarter of 2000 by the DAK Group, an investment banking firm specializing in private-company sales and acquisitions, and the Rutgers University School of Business.

"The driving force behind this M & A activity is economic rather than personal," said Alan J. Scharfstein, president of the DAK Group. "Only one in three of those planning to sell expects to retire, and nearly half say they plan to remain with their company in a non-ownership role. The strong economy is creating opportunities for owners to sell at a premium. So, they're getting their companies ready for sale. In many cases, this means making an acquisition to give the company greater critical mass and enhance its appeal to acquirers."

These numbers generally correspond to the findings of Industrial Distribution's 54th Annual Survey of Distributor Operations, detailed in this issue. According to the 54th annual survey, 29.4 percent of general line and specialty distributors would welcome an acquisition offer, and 28.2 percent are actively seeking to acquire another distributorship.

The DAK study found that M & A activity is being driven more by success than fear of failure. Only six percent of the owners cite a lack of capital as their reason for selling, down from 20 percent in last year's study. Seventy percent say the value of their business increased in 1999; 20 percent say it remained the same; only 10 percent reported a decline.

"Times are good, but business owners are looking to the future with foreboding," says Scharfstein. "Asked why they want to sell, many cite such factors as competition, market changes and risk reduction. A number of industry sectors are rapidly consolidating. Companies that plan to remain independent are rushing to strengthen their market position by making strategic acquisitions. They're bidding up the value of attractive niche companies and giving owners a chance to sell at a premium."