Did you abandon plans of buying a business when the economy went south? Find out why now’s a good time to start up the search again.

A little more than two years ago, a restaurant owner purchased a diner in my hometown, transforming him into the proprietor of a two-restaurant chain. He told local reporters the deal was just too good to pass up, even though theU.S. was knee-deep in the worst recession since the Great Depression.

Buying another business back then took guts, even if it was available at a fire-sale price. It still takes guts today, even though the economy is on much firmer footing. But it is getting easier.

Acquisition targets that made it through the recession have proven their mettle. A rebounding economy means customers are no longer in hiding. Securing financing is still a challenge, but not the bear it was two years ago, when many banks were in dire financial straits of their own. And psychologically, it’s easier to take on a new risk when the economy isn’t on its knees.

In short, if you’ve been looking to grow your business through acquisitions, now may be the time to get back in the hunt.

A changing market for mergers and acquisitions

“The market for small-business mergers and acquisitions is definitely picking up,” observes business broker Scott Bushkie, president of Cornerstone Business Services in Green Bay, Wisconsin. “It’s not taking off like a rocket ship, but it’s moving along.”

Cornerstone’s fiscal year begins on December 1, and Bushkie notes that in the first four months of the current fiscal year, he’s closed as many transactions as he did over the prior 12 months.

This pickup in activity means that if you’re looking to buy a business, you’ve got some challenges to confront that you may not have faced two years ago. With more potential buyers in the market, you may have to move more quickly than you would have in the past, or risk losing an opportunity. You may have to pay a little more. That means you have to be just as careful in evaluating a potential acquisition today as you were during the recession.

Setting yourself up for success

For starters, pay attention to asset valuations, making sure they reflect current economic conditions. If the target company is having a cash-flow problem, make sure you can fix it. You should know, for example, whether poor-selling products are not being sold because they are no good, are too expensive relative to the competition, or simply don’t have access to the same distribution channels you enjoy.

Review the target company’s contracts with vendors, customers and landlords, and make sure its taxes and other necessary government filings are up to date. Consider poorly kept financial records a red flag.

One way to improve your odds of success, says Kara Sharp, director of advisory services for Kaufman Rossin, an accounting and consulting firm in Miami, is to target companies in your industry, where you know the problem areas.

That advice is borne out by research done by Booz & Company, a global management consulting firm that recently studied hundreds of deals across multiple industries. It concluded that the most successful M&A transactions are those aimed at leveraging the existing capabilities of one or more of the participants, not diversifying into entirely new lines of business.

Know your limitations

That doesn’t mean you can’t extend your reach – only that you shouldn’t overextend it. For example, you might consider acquiring a direct competitor, a company that broadens your geographic reach in the same line of business, or, as Sari Crevin did, a company whose activities complement the products or services you already provide.

Crevin is the owner and chief executive of BooginHead LLC, the Issaquah, Washington-based maker of the SippiGrip cup and bottle tether, as well as other baby products. In March, her company acquired Lots to Say Baby, a Washington-based company that makes a line of pacifiers with clever sayings on them.

“I knew that in order to grow my brand and its shelf presence, I needed to add to the BooginHead line in a way that retailers felt added value,” Crevin says. “Lots to Say Baby’s pacifier line, coupled with my very successful PaciGrip product [a pacifier leash], was the perfect fit.”

While optimistic about what the acquisition can do for her business, Crevin admits that she may not have been willing to pursue it during the depths of the recession.

“I definitely would’ve been nervous two years ago,” she says. “The economy was very grim, and even though my business was doing well, the media around the possibility of the economy moving into a depression was very scary. At the time, it felt irresponsible to be taking any financial risks.”

Again, acquisitions are never risk-free. But if your company came through the recession intact, this could be an opportune time to grow by acquiring another business – even if it’s no longer the screaming bargain it was just a couple years ago.

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