A good time to buy

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12/16/2008
As I wrote in my preview of the finance special report last week, most lenders are of the opinion that now is a great time for strong companies to take advantage of the down market and roll up some smaller firms with an eye toward expansion. They're looking to lend to companies with a strong balance sheet, so you can find some financing if you need it, but they also say it's a good time to take cash you might have on hand and invest it in gathering up more RMR, or, alternately, cash out some RMR to make some capital investments that will allow you to gather more RMR still. Looks like this isn't contained to the security industry. Here's an interesting article from the Boston Globe that mentions American Alarm passingly in looking at this phenomenon. The premise is that the market for mid-market acquisitions is hot right now (relatively speaking - it's down, but not down as much), which jibes with the information I've been gathering - in that it's much easier to get a smaller deal done than a larger one, since the days of bit leveraged buy-outs and the like are pretty much over with for the foreseeable future. I think this line of thinking applies well to security: "You can pull your horns in and wait for the storm to go by, or you can go out there and act," said Dale Calder, the chief executive of Axeda Corp., a Foxborough maker of diagnostic software for medical gear, data storage equipment, and automated teller machines. "If you're a buyer in this economy, there's some pretty good deals to be had." The question is whether we'll see an aggressive buyer like Stanley start gobbling up mid-sized players, or whether those mid-sized players will start consolidating among themselves and picking up smaller firms. Or both, I guess. But I'm leaning toward the latter. I expect ASG to be very aggressive in this market, along with Security Networks (which closed on a big credit facility this summer, so has the cash on hand), Per Mar, Guardian Protection, ADS, Dakota, and the like. It could also be a good time for some of the larger independent commercial/government integrators to pick up talent and customers, like Adesta, Convergint, NAVCO, etc. Finally, like the firms in the Globe article, smaller manufacturers might decide this is a good time to get out and sell themselves to larger companies with cash on hand or similar-sized companies who aren't in the red, in a "merger" scenario where everyone keeps their jobs. This also jibes with what I'm hearing: "We're seeing a crack in the ice," said Gail R. Long, the chief executive of the Boston chapter of the Association for Corporate Growth, a group representing midmarket merger professionals. "If companies have capital, this is a great time to make strategic acquisitions. And plenty of small banks and nonbank lenders are getting deals done." Finally, there's the capital gains question that looms over all of this. Will be see a small surge of sales right before Dec. 31 and people look to cash out and avoid an Obama-led capital gains increase for 2009? We'll see. That would certainly make things more interesting around here. The news biz is currently pretty slow.