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Need Workers? Buy a Company!
As seen in Silicon Valley Business Ink
by Michael Sipe

In the course of working on a wide range of middle market mergers and acquisitions, I'm hearing more about the shortage of qualified employees than perhaps any other topic. The technology, manufacturing, retail and service industries are all feeling the crunch.

Today's situation, however, which is forecast to continue for the next decade, presents both a challenge and an opportunity.

The bad news, of course, is many businesses are finding it difficult to locate enough qualified employees to meet demand. That's coupled with increased labor costs. Sometimes, attractive sales opportunities are missed because the work cannot be
fulfilled -- as in, "Be careful what you ask for, you might get it."

But not all news is bad news.

A labor shortage forces companies that want to grow to develop more efficient operations and to implement strong production and quality systems.

These competitive business practices become important intellectual assets, which, in turn, makes for an attractive package when it comes time to sell the business.

For some businesses, the staffing challenges and pressures of a white-hot economy are more than the owners wish to deal with. These companies become prime acquisition targets.

Local companies facing capacity and labor shortages can sometimes buy the capacity and skilled labor they need very profitably.

In the strong economy we are enjoying, having the capacity and ability to meet customer demand when your competitors can't, may open opportunities to increase prices and improve gross margins -- both of which make the company more valuable.

From the standpoint of sellers, there are many investment groups, corporate buyers and startups who want to buy or expand into Silicon Valley.

Increasingly, however, they are facing a prohibitive barrier to entry when they realize that hiring a fresh crop of qualified employees to launch their new venture is simply not possible.

To these entities, acquiring an established company with a work force in place is the ideal solution to a very challenging problem and results in several profitable benefits.

Predominant among these are greater productivity and decreased risk.

The phrase, "Our employees are our most valuable resource," has become cliché. However, in Silicon Valley, it's no cliché.

A well-trained, highly skilled, properly compensated and motivated work force is arguably the most important asset of an entrepreneurial company.

Like most things in business, when viewed creatively, challenges are usually opportunities in disguise, and the labor shortage is no exception.
 

Michael Sipe is president of Private Equities, a middle market mergers and acquisitions firm. You can reach him on:408.295.4299 or at inquiry@private-equities.com.

 

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