Posturing for an imminent recession
July 13, 2022
by a searcher from The University of Michigan - Stephen M. Ross School of Business in Charlotte, NC, USA
Hi,
For those seasoned investors, how are you posturing for an imminent recession . How have deal source and capital structure strategies change in light increased interest interest rates? Will there be a material effect on search fund activity?
from University of Southern California in North Palm Beach, FL, USA
From my book:
Company’s catastrophe can be your buying opportunity. These are some of the catastrophes adversely affecting companies, which give their owners a compelling reason to sell. • Owner dies without succession plan • Catastrophic natural event • Uninsured damage or legal claims • Unprecedented loss of sales • Governmental actions or seizures • Political decisions • Sudden financial write-down or write-off • Fraud or theft • Wrong business decision • Court judgment against the business • Restraining legal action • Strike or labor disruption • Expiration of financing • Lender changes terms of financing • Involuntary bankruptcy possible. These situations, if you know how to cope with them, give you the opportunity to buy the company on terms favorable to you.
from Union College in New York, USA
- Focus on recession resistant businesses (healthcare, deathcare, senior living, consumer staples, food, plumbing, hvac etc.)
- Less leverage (might mean smaller target than you intend, important so you can survive your debt service)
- Pay a lower multiple for the target (more likely to survive if you pay 3x versus 7x. Also regarding valuation, pay attention to public comps, if UHAL trades at 5.5x EV/EBITDA, then the SMB in a similar line of business should trade at a sufficient discount, (for example)).