One of the first items on most buyers’ punch list during due diligence revolves around the capabilities and the quality of the staff working for the company they are acquiring. The reality is if the buyers are unable to retain the current staff post acquisition, and if they are not going to find qualified employees going forward, then they will have concerns about the long-term viability of the organization. This is especially true if the company is significantly dependent on the owner that is selling and exiting.
One of the nice things about this time of the year if you are doing M&A research is that lots of sources are releasing new reports almost daily regarding last year’s performance and this year’s projections.
What is really exciting is that no matter which study you read and no matter how they slice and dice the data, 2014 turned out to be a record year for M&A activity.
A new study substantiates this theme.
As we have examined, 2014 turned out to be tremendously productive year for sellers of privately held companies. The seller’s market that we entered in 2013 was maintained and even picked up steam in 2015. Another source has also substantiated this fact.
“17,357 transactions were finalized last year, a 12% increase over the 15,453 deals made in 2013. Total value was up about 24%, from $1.02 trillion in 2013 to $1.27 trillion last year.”
The past few years have revealed a new trend in mergers and acquisitions (M&A): the recovery of the manufacturing-related deal. As we have discussed in the past, if you own a manufacturing entity housed in the U.S., you may be sitting on a very valuable business and not even be aware of it.
Recently The M&A Advisor, along with Foley & Lardner LLP, released a study entitled “Additive Manufacturing – The Next Generation.” The focus of the report was interesting because it was based on a roundtable discussion from late last year examining the role that M&A is playing in the resurgence of manufacturing activity in the U.S. Here are some of their findings:
A few weeks ago we published an article discussing how vital it is to hire a team of professionals to help you effectively plan, create, and conclude your exit plan. Now a recent article in USA Today supports that notion. Entitled “Retirement: Why Small Business Owners Don't Save,” the articles ultimate conclusion was this:
“Robert Bosart, financial adviser with Wells Fargo Advisor's Group in Birmingham, Mich., says entrepreneurs and small-business owners need a team. ‘They need a CPA, a financial planner and a good attorney on the estate side. There is a realization once your head comes out of the clouds that, 'I need professionals guiding me.' It's a partnership.’"
Of course to this team listed above we add a vital partner: an M&A advisory firm/consultant!
And why is a team important?
A lot of questions have been asked this year about the current merger and acquisition (M&A) cycle, and the real issue behind the questions is this: How long will the current sellers market remain in force?
Given that last year was nearly a record year in terms of volume and was a record year in terms of value, business owners that attend our exit planning seminars often wonder, how long will this continue?
The reality is the factors underpinning the market in 2014 are still in force this year. Even with interest rates expected to increase sometime in 2015, they will still be far below historic levels and should not impact deal making that dramatically.
As much as we talk about private equity playing a key role in middle-market merger and acquisition (M&A) activity, it is important to remember that strategic players are also a key buying group driving activity in this sector. Both groups bring differing strategies and goals to their acquisition programs but they ultimately want the same thing: To find companies in the middle market that are profitable, growing, and “buyer ready.”
Recently Firmex and Mergermarket combined to survey corporate leaders (from now on referred to as strategic buyers) regarding their expectations for M&A activity in U.S. and Canada going forward. Their report, entitled “Mid-Market: The Crux of North American M&A,” is a great examination of how leaders of these strategic players in North America are viewing the M&A environment they face.
I was recently traveling to visit a client with one of our more experienced dealmakers, and while trapped in an airport due to bad weather and growing tired of hearing about his exceptional children, I asked him to give me some ideas I could share with our blog readers about what to expect once they have made the decision to go to market.
His answer was simple and straight to the point:
No matter how prepared you are, expect something (and sometimes everything) to go wrong at least once along the way.
One of the most important issues facing business owners in America today is related to timing, and not just timing in general but exit strategy timing. We have discussed the importance of creating a succession plan many times. The fact is that far too many business owners simply delay the inevitable and do not develop a team to replace themselves until it becomes obvious that buyers could be concerned.
In fact, one of the reasons that some of our clients enter our value enhancement program post-evaluation is that they realize in order to obtain an optimal value for their companies, they need to work on developing a cadre, a team, a group of mid-level managers that are ready to support the company if the owner were to exit.
An interesting study was release recently by CliftonLarsonAllen's (CLA) that looked at this issue.
I always find business owner surveys that highlight their concerns of tremendous interest. What a great way to determine how entrepreneurs are planning their futures based on their macro and micro business concerns.
So when Axial released its Middle Market Monday 2015 survey a few weeks ago, I read it with great curiosity (Axial is a leading B2B website that combines business owners with capital providers/intermediaries). More than 100 business owners participated in the survey and the results told me two things: They are facing growing pains in terms of people and capital, and to overcome these issues they are looking outside via acquisitions to fill the gaps.