Merger and Acquisition Trends

By Generational Equity


Recently The M&A Advisor, a leading mergers and acquisitions trade organization, along with Katz, Sapper & Miller, a renowned CPA firm, conducted a survey of experienced M&A professionals.

The aim of the study was to delve into trends and developments impacting M&A deal making in 2016 and how those issues might impact 2017. As always, their findings were quite enlightening. We will be spending the next couple of postings looking at some of their results to discern how business owners can take advantage of the current M&A environment.

Respondents were asked to rank the top three to five challenges buyers faced in 2016. The top two choices were “sourcing a company that is a good cultural fit,” chosen by 55.2 percent of respondents, and “owners’ willingness to relinquish control,” chosen by 52.4 percent of respondents. You can see the entire results of the question below:

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Source: The M&A Advisor 2016 Trends and the Outlook for 2017

I found the results of this question quite interesting because the top two variables address how challenging it is for professional buyers to close transactions. By far, finding the appropriate candidate to invest in is the largest challenge buyers tell us about as well. That is why they enjoy working with the Generational Group: our dealmakers are skilled in bringing appropriate sellers to synergistic buyers. This saves the buying organization the task of sourcing deals that make sense.

On top of that, we ensure that our clients are, in fact, true sellers, not merely business owners testing the market to determine if there are any buyers active in the industry. How do we do that? First, we charge an initial fee that is refunded from our success fee at the close of the transaction (except in California). The commitment of paying the initial fee is a key first step in gauging a business owner’s true interest in selling.

Secondly, the first step in our proven process is our full and thorough evaluation of the client company. This step usually takes 60-120 days depending on the quality of the company’s financials, as well as the availability of ownership to answer our key questions. Although not nearly as grueling as due diligence usually is, the evaluation nonetheless does certainly test the true goals of our client and their commitment to actually culminating the process with a sale.

In fact, quite often our clients decide to retain the company long-term after our evaluation simply because through our process they realize that leaving the business is simply not the best option for them at that point in time. Holding and growing the company for a later exit point makes more sense.

So, our work clearly removes those unsure of selling from our pool of clients, which, again, is helpful to buyers. Buyers tell us that they have plenty of capital to invest right now; what they lack is time. There is nothing more painful from a buyer’s perspective than to spend three of four months getting to know a target, moving through due diligence, only to have the seller back out at the 11th hour due to cold feet. Our process helps to better prepare the seller psychologically for his/her eventual departure from the business.

However, the most important first step even before a decision to sell is to gain as much education as possible about the process. Knowledge is power and the more you know, the better a decision maker you will be regarding when and how to exit from your company for maximum value. A great place to start your education on this topic is attending a Generational Group executive conference on exit planning. We hold these throughout North America and spending a few hours with us will allow you to examine some key topics like these:

  • Building value vs. growing a business
  • Value myths exposed – The truth about multiples, book values and more
  • How savvy buyers take advantage of unprepared sellers
  • Interest rates and their impact on selling price
  • Exit strategy and timing
  • Presenting your financials properly

This is just a short sampling of what we cover, to see our full agenda and find out how you can attend, please use the following links:

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

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