As you are aware, late last year the Fed increased their benchmark interest rate from zero, where it had been for nearly 10 years, to 0.25%. As the impact ripples through the economy over the next few months, one of the industries that may be impacted is the mergers and acquisitions (M&A) industry. Business owners we meet are naturally concerned that this increase may signal the end of the strongest M&A market in decades (last year was a record year for M&A activity).
This is a question that we get regularly at our M&A conferences. In fact, we spend a good portion of the entire day at the symposium answering it. The good news is that with some effort and strategic planning, most businesses that we encounter can become far more “buyer ready.” The key we have found is in this simple yet profound statement: You have to start looking at your business as a buyer would.
Most entrepreneurs spend years building their ventures, many 20-30 years and beyond, and are successful doing so because they focus with laser-like intensity on satisfying their customers by providing a solid product/service that the market wants. This means they haven’t thought like a buyer of a business does because they have never bought a business.
For those of you that want to focus on building a business that is positioned for your eventual transition, we have written this article to guide you. Based on our experiences throughout the years, there are three broad areas that buyers look closely at:
One of the most important business, financial, and personal decisions you will ever make if you own a privately held company is deciding what to do with it. You will eventually need to transition the business to new owners unless you plan to close the doors, lay off the employees, and liquidate the assets. Sadly, for some of you this will be the preferred course of action. And if so, the orderly liquidation of your assets and the dissolution of the business can be a wise option.
For many, though, your investment of time, capital, sweat, and familial sacrifice will demand a far better course: the transfer of the asset to a third party. This can take many forms and that is where the challenge comes in. The many options facing you can (and will) be daunting.
A few days ago we discussed the qualifications you should look for in your M&A advisory team. As we examined that topic, we were reminded that in reality, your team should not only include an experienced M&A advisory firm but should also include a qualified M&A attorney, CPA, and for your own financial sake, an experienced wealth manager to manage your new found liquidity.
One of the most important business relationships company owners will ever establish is the one with their M&A advisor. Unfortunately, it tends to be one of the least understood, neglected relationships in the business world. Far too often a business owner reaches out to an M&A firm only after being contacted by a buyer or even worse, after already signing a letter of intent or some other promissory agreement.
The great benefit of being in the middle-market M&A business for so long is that we have tabulated and calculated the common issues that we see business owners encounter all too often when selling their businesses. These mistakes are so common that we thought it would be a good idea to document them so that if you are eventually trying to find a buyer for your business, you will avoid these mistakes (if you can).
Despite all the recent good news we have seen regarding record M&A activity in 2015 and expectations in 2016 (another great year), there are a number of folks who track deal activity that are growing concerned about the pipeline of deals that are starting to move through the process of finding buyers.
This topic was covered in a recent webinar entitled “Why Businesses Aren’t Selling: How Valuations Can Help.” Hosted by Sageworks, a financial information company, the focus of the discussion was on how to help M&A advisors and investment banks enhance deal volume and velocity. It was conducted from the perspective of professionals in the industry helping other professionals work through the reasons why deals are not closing right now despite it being a “seller’s market.” Even though the focus and data provided was tailored to advisors, some of the information shared also pertains to business owners.
The headlines from a number of publications during the end of 2015 clearly outline what our dealmakers have been saying for months:
- USA Today – 2015 Was Good Year For M&A-Minded Companies – Dec. 11, 2015
- The Wall Street Journal – 2015 Becomes the Biggest M&A Year Ever – Dec. 3, 2015
- The Wall Street Journal – Forget Going Public, U.S. Companies Want to Get Bought – Nov. 29, 2015
- USA Today – Merger Boom Shows No Sign Of Slowing, On Track For Record Year – Oct. 2, 2015
Topics: m&a activity
Last month The Mergermarket Group (a leading M&A intelligence provider) in conjunction with Firmex (a virtual data room provider) released a study entitled, “Mid-Market: North American M&A 2016 Outlook.” The document examines the overall health of the M&A market, especially as it relates to middle-market-sized companies, which we define as companies with revenue below $200 million.
The piece was based on a roundtable discussion that Mergermarket and Firmex hosted. One of the questions and the responses by Jerry Black, partner with Akerman, and David Horing, managing director with American Securities, caught my attention:
MM: What are the opportunities and challenges for mid-market PE in 2016?
This is a great time of year for analysts focused on M&A research because the tallies for the year are starting to be compiled. This allows researchers to develop an idea of where the market for companies is and where it is heading.
Topics: m&a activity