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More competition at the negotiation table

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When business owners decide to sell their companies, they generally have two choices: sell to a strategic buyer — another company in their industry that wants to expand — or to a financial buyer, such as a private equity firm that needs to put investor capital to work by acquiring businesses.

A new survey of private-equity firms finds these firms generally optimistic, with 80 percent forecasting double-digit returns in 2013. But an equal share are expecting more competition for deals from strategic buyers in 2013 than last year.

Tom Angell is principal in charge of Rothstein Kass' private equity practice, which in June released its annual survey of 215 private equity firms that were polled during January and February. Rothstein Kass is a national accounting and consulting firm with offices in Roseland.

Angell said the nature of the U.S. economy over the past few years has resulted in more competition for private equity firms looking to do deals. He said the strategic buyers — for example, a technology company looking to acquire a rival and push into a new market or territory — may have an advantage.

"It's easier for a strategic (buyer) to make a deal because they could pay more," Angell said. "The private equity fund's time horizon is shorter — usually seven to 10 years — where the strategic is looking more long-term and can extend that cost over a longer period of time."

And the strategic buyer, who knows the industry from the inside out, may go into a deal already aware of expense cuts that can make the deal work. "So the strategics could potentially pay more," he said.

And many strategic buyers have the means to do acquisitions, because "they are sitting on cash," Angell said. The economic uncertainty of the last few years has held companies back from investing in their own business or making acquisitions, so now they have cash to do deals.

"Selling is OK — but buying is a problem, because the prices are high," he said.

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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