Now is not the time for a “one-size fits all” strategy

Posted by | March 31, 2011

The last few years have reminded us that the world remains fraught with risk.  Business managers came to believe there was no end in sight to the challenging economy, much as they believed prior to the Great Recession that the punchbowl would never be taken away.  But perhaps in reaction to the preceding decade of accumulated excesses, the risk pendulum may have swung too far. 

Yes, economic growth remains sluggish.  However, CFO’s may be missing an opportunity if they continue their “lock all windows and doors” strategy to evaluating the use and structure of appropriate business capital.  This isn’t time for a “one-size fits all” growth strategy. 

During this recent market downturn, companies were not equally affected, and the credit crunch only exacerbated the problem for more highly leveraged companies.  Unlike prior economic downturns, coming out of the Great Recession it is clear a strong balance sheet is a company’s most valuable competitive advantage.

The headlines suggest that certain segments of America’s businesses have accumulated substantial amounts of cash over the past 24 months.  A maniacal focus on profits and deleveraging has produced substantial amounts of ready capital. 

Now that cash is beginning to accumulate and the credit markets are beginning to thaw, there are certain opportunities to leverage.  It is true that banks are still holding fairly high standards for lending, so finding the right lender and terms may take some additional time.  However, borrowing opportunities do exist.  In fact, now is the time to properly evaluate the variety of borrowing facilities available from traditional commercial lenders as well as alternative lenders – such as mezzanine or venture lenders.  The appropriate use of such debt along substantial cash assets serve as a substantial increase in “fire power” available to management teams to be aggressive to gain market share and be predatory. 

Weaker competitors with limited access to credit are finding it increasingly difficult to hang on.  And, the scarcity, if not cost, of capital over the last few years has forced companies to reduce their expectations with respect to value.  As a result, we are entering a stage where attractive acquisition opportunities will begin to substantially proliferate. 

So, at the risk of overstating what is becoming obvious to management teams, throw open those windows and doors by utilizing the capital available to boldly pursue long-term growth strategies and new market opportunities.

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