LFM Capital’s Stephen Cook: In Tough Times, Pass In The Corners

Major market disruptions — such as the Great Recession or the current pandemic — create opportunities for companies to improve their position.

Stephen Cook, executive managing director at LFM Capital, likens times such as these to short track speed skating — nobody passes on the straightaways, but there's a lot of passing that occurs on the corners.

"The economy is in a very sharp corner right now and it's a great time to be thinking creatively and trying to figure out how do you pass competitors or how do you ensure the company is successful on the other side of this where many competitors might not be," Cook says. "It is a good time to be starting to think offensively."

He spoke on the Smart Business Dealmakers Podcast about the outlook for buyers and sellers, and the importance of compromise in getting deals done.

Following are excerpts from that conversation.

Reasonable parties

Cook says the deals that are moving forward usually have an owner who is motivated to sell, and one that is willing to be reasonable when it comes to terms. Many of those owners seem willing to accept a structure in the deal that shares the risk between the buyer and the seller created by the uncertainty in the economy. And when a buyer has found a seller that really resonates with them and they feel will be a good Steward for the company that they built, they're motivated to try and find a way to get the deal done.

The difference, through the balance of the year, between deals getting done or not, is people on both sides being reasonable.

"If a buyer goes into a transaction thinking there's blood in the water, this is a time where I can get a great deal on a company, that's probably not fair to an owner," Cook says. "The owner didn't do anything to bring upon COVID-19."

On the flip side, he says if a seller is demanding a price that's hard to justify given the market, that will sour the chances of transacting.

"On both sides,” Cook says, “there needs to be a willingness to compromise and just to be logical about the level of uncertainty for both parties right now and how you can fairly share the risk of that uncertainty."

Answer for your choices

Sellers give themselves the best chance to preserve value if they focus on running the business.

"If you want to sell your business down the road,” Cook says, “having a long-term approach as if you were never planning to sell your business is probably the right approach."

That means seizing opportunities to make sensible capital investments, chasing a market in which a competitor is really struggling, etc.

"There's going to be a lot of people trying to justify the actions that they took during this crisis," Cook says. "Obviously people have to adjust their cost structure to help their company to be as successful as possible through these times, but in a year or five years, if a potential buyer is asking you about COVID-19 and what happened, if you've taken a long-term approach and you can articulate why you made the decisions that you made and how you felt like you were setting your business up for success in the long run, that's probably going to resonate with most buyers."