How to Succeed with Your M&A Strategy

By Generational Equity


Recently, the National Center for the Middle Market conducted a survey on factors currently driving middle market M&A activity. They surveyed 400 strategic decision makers from middle market companies that either “completed an acquisition or sale in the past three years” or “are highly likely to sell a company or part of a company in the next three years.”

Their goal with the survey was clear:

The Center designed the survey to understand attitudes and perceptions related to M&A, evaluate the importance of acquisitions and sales to middle market companies, identify drivers of M&A activity in the middle market, and gain insight into the obstacles and challenges involved in deal-making pre-, during, and post-transaction.

As with all their research, the analysis of the respondents provides clear insights into factors driving middle market M&A activity today, factors that could influence an M&A strategy for your business.

What is an M&A strategy?

It is a plan outlining your corporate development efforts, utilizing mergers and acquisitions to benefit you and your business. This could be securing investment for company growth, or exiting the business for the optimal value. Outcomes might differ, but an exit strategy should exist nonetheless.

As most of our readers are owners of middle market companies, I thought I would share some of the key points from NCMM’s survey here with you:

  1. When middle market executives initiate acquisitions, the buys are mostly based on a strategic rationale: Buyers are looking to drive growth by acquiring market share, capabilities, technology, and/or talent.
  2. A majority of middle market executives who participate in M&A – 60% – say that inorganic growth plays an important role in company growth strategy. The desire to drive growth is the number one reason companies consider M&A.
  3. The availability of more money to go after a relatively constant number of targets is driving valuations up. So, while actual deal counts have increased only slightly, there are more players in the game along with a heightened sense of urgency around deals.
  4. With many deals, progress can be slow and difficult to measure due to unexpected issues. Most deals take three to twelve months to complete. The planning horizon to become deal-ready ideally should be three to five times as long as the deal-making process itself.
  5. Developing or getting help with capabilities in planning, financial reporting, valuation, and execution well in advance of having a specific target in mind ensures that companies are ready to move when the time comes.

Of all their findings, I think the last two paragraphs are probably the most important to consider, especially if you own a middle market business today. If you haven’t thought about your M&A strategy at this point, it’s time to think again.

This cannot be stressed enough: You need to get started today if you want to exit in the next 9-14 months, and tomorrow if you are looking at an exit 2-3 years from now or farther. In reality, you should have a relationship started with an M&A advisory firm as early as possible in order to maximize your results.

How can they help with my M&A Strategy?

Because quite frankly few privately held businesses are “buyer ready” the instant the owner(s) decides to sell. This is one of the most important services we offer our clients; we help them to see their companies as buyers will in a detailed M&A strategy.

In fact, our due diligence checklist, which is part of our Roadmap for Enhancing Value, is probably one of the most important documents we prepare for each client. It allows the business owner to determine the steps he or she needs to take in order to optimize their valuations in the marketplace.

Few that are selling a business realize the importance of this until they are deep into due diligence with a buyer who begins to raise concerns about common issues, such as:

  • Excessive owner dependence
  • High customer concentration
  • Poor accounting systems
  • Lack of documentation
  • No middle management

These are just some of the roadblocks that an effective M&A strategy will help you navigate on the path to a successful exit from your company.

What often happens when these issues come to light? Two things typically. First, the valuation of your business is often lowered and/or secondly, contingencies such as earn-outs are attached to the transaction.

In many cases, deals completely fall apart because sellers have not created buyer ready businesses and the risk becomes too great for a buyer to move forward.

Start an M&A Strategy today with Generational Equity

To ensure that this does not happen to you, be wise and hire an experienced M&A advisory firm like Generational Equity to guide you through the process. With ample time available to you prior to your exit, you can truly enhance the company’s salability.

If you are ready to start creating your M&A strategy, take the first step by attending an executive conference.  Our experienced M&A advisors provide a unique, in-depth insight into M&A activity and the keys to building a buyer ready business.

Want to learn more? Use the following links:

And special thanks to the National Center for the Middle Market for conducting this survey and for providing some great analysis of the results. If you would like to review the report yourself, use the following link: Middle Market M&A: What Executives and Advisors Need to Know to Make the Most of Mergers & Acquisitions.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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