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The economic recession that we have all experienced over the last several years has put a strain on all individuals and all businesses throughout the world. The world’s largest economy, the US, has the dubious distinction of both leading the fall into recession and taking the longest time to exit the recession. While conditions in the US are improving slightly, several factors are creating a drag on the recovery, including:

• Declines in consumer confidence - Despite signs of a slow recovery, consumers in the US are still cautious about spending. The majority of the US economy is driven by consumer behavior
• Unemployment – The unemployment figures continue to reach record highs, over 10%. In addition, in key states like California and Florida, and in my home state of Nevada, figures are well above the national average
• Weakness of the Dollar – The value of the dollar has reached record lows versus some major currencies. The US relies on many imports to drive the economy; they are far more expensive to buy when the dollar is weak. This also dramatically raises energy costs, based on oil prices.
 
One of the key factors mentioned above is the weak dollar. However, to really see what has happened to the value of the dollar, we need to look back in time. Between 2002 - 2008, the dollar lost 40% of its value. In 2002, a euro was only worth 87 cents. Since April 2008 businesses have hoarded dollars as credit wasn't available, creating an 11-month dollar strengthening cycle. The dollar's value actually increased 20% from April 2008 to March 2009. However, since that time, the dollar has again lost value, down over 20% versus key world currencies. The net result is that the dollar is now at historic low values versus most of the major world currencies, down well over 40% since 2002. Economists also predict this fall will continue into early 2010, based upon some key factors:
 
1. The U.S. debt is rising to over $12 trillion. Foreign investors are concerned that the U.S. will let the dollar decline so the relative value of its debt is less.
2. The large debt could force the U.S. to raise taxes to pay it off, which would slow economic growth.
3. As more countries join or trade with the EU, demand for the euro will increase.
4. Foreign investors may want to diversify their portfolios with more non-dollar denominated assets.
5. As the dollar resumes its decline, investors will be less likely to hold assets in dollars as they wait for the decline to stop.

So what does that mean today for companies in the software sector, and the ECM, BPM and BPO sectors specifically? It means that, based on currency weakness alone, US companies have lost 40% of their valuation; basically, they can be acquired for far less than at any time since 2002, based only on currency changes!
 
However, the current global market and the US economic issues mentioned above are now creating the “perfect storm” for companies and investors outside the US seeking to grow by acquisition or merger. While companies are still solid and growing, and market needs are expanding, valuations are holding or declining, based upon some key factors, including:

• The dollar weakness, cited above
• The slow growth of company revenue, based on the recession and the lack of business investment
• The “closed” capital markets of 2009
• The inability of VC’s and Investors to pay future tranches to their portfolio companies
 
The bottom line is that these may be the best conditions for growth and expansion in the US in well over a decade. We are seeing a dramatic jump in US companies open to acquisition, many of them with solid technologies, broad customer bases and excellent domain knowledge and solutions knowledge. There are also excellent opportunities from quality companies stressed by the current economy. We believe this is the greatest opportunity for growth we have seen. The users and markets we have spoken to, indicate a possible dramatic rise in ECM, BPM and BPM opportunities over the next months, based on several factors:
 
• Decisions to invest in technology solutions were put on hold earlier in the year; many are now being reinstated because of economic improvement
• The US market is still one of huge opportunity; the adoption rate for ECM and other technology remains low, with a great deal of growth opportunity
• New regulations will lead to more ECM and BPM solutions in all markets
• The need for Transparency will be a key driver for solution adoption and expansion
• The high unemployment indicates that many businesses have cut employees over the last several years; ECM technologies will enable them to adopt to these changes and drive efficiency through technology use
 
We have also seen some reluctance over the years to enter the US market.
Some companies have tried but never achieved the results necessary for success. Over the years, we have seen this occur and have some key observations about making a successful acquisition:

1. Choose your acquisition target wisely; spend the time upfront, before searching, to detail what an ideal acquisition partner will look like
2. Leverage the strengths of the acquisition target and eliminate their weaknesses
3. Be sure to have an integration plan built well before completing an acquisition
4. Understand the culture of the acquisition target; cultural mismatches cause more problems in acquisitions than most other reasons combined!
5. Listen and respond to the unique needs of the US market; many companies have failed because they do not respond to key market needs.
6. Understand the differences in sales process in the new company; every region has unique requirements and subtleties
7. Always seek expert advice during the process