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Survey Says: Middle Market CFOs Ready to Spend on M&A

By Generational Equity

03/23/2020

A few weeks ago, according to the online magazine CFO Dive, and a survey by consulting firm BDO, most middle market CFOs weren't too worried about an economic downturn this year, and instead were preparing to focus on growth. ​Fewer than 20% of CFOs thought the economy would tip into recession, and only 11% had made preparation a top concern. 

Note: This survey was conducted before the fear of a coronavirus pandemic was raised. However, the underlying issues driving M&A will not change and, in fact, may become even more paramount as time passes. Read on for more information.

Most importantly, 25% of those surveyed indicated that growth via M&A is planned in 2020.

That is a significant statistic indeed. Based on 700 middle market CFOs surveyed, a sizable portion are planning to grow in 2020 via acquisitions. This should play a substantial role in the continuation of our current seller’s market that we have been in for several years.

What I found most interesting is that one of the main concerns that CFOs had related to personnel matters. And what is really telling is how these personnel issues can be solved by a strategic focus on mergers and acquisitions. Here is how the article summarizes the findings:

CFOs are trying to find ways to address one of their most pressing concerns: hiring and retaining talent. In fact, the BDO survey finds workforce issues are the number two priority this year, behind only digital transformation. It broke out these workforce issues in six categories, ranked by how much CFOs expect to focus on them:

  • Increasing labor costs (21%)
  • Shortage of skilled workers (18%)
  • Retaining talent (17%)
  • Training and development (17%)
  • Attracting talent (17%)
  • Navigating labor disputes (10%)

Each of the items I have bolded above can be significantly improved upon by a strategic acquisition program. You may not even be aware of it, but one of the most important intangible assets that acquirers are looking for is people. Especially talented, experienced professionals.

Using M&A to Meet Talent Demands

When was the last time you took a good look at your organizational chart? Have you ever done a skills analysis of your key players? And I am not just talking about your executive staff – I am referring to Larry who has been working in your shop for 25 years and has a wealth of experience and talent that many buyers will find attractive.

You might be sitting on a personnel gold mine and not even be aware of it!

One of the most important areas we cover with our clients during the evaluation phase of our process is the examination of “key” employees. The purpose of this is to determine if the client has some built-in intangible value in his/her associate pool. More often than not they do (and often without really considering it).

To accurately view the value of your employees you must begin thinking like a buyer. A buyer (a CFO for example) who is often troubled by a shortage of skilled workers, the difficulty in training and developing associates, and the huge challenge of attracting talent when unemployment is so low. What are they looking for in acquisition targets? Could your company be one of them?

CFOs Turning to M&A

So bottom-line: A good percentage of CFOs surveyed by BDO are planning to use acquisitions to address growth in 2020. And HR concerns are paramount to CFOs right now; the smart ones will use an aggressive M&A program to address shortages in talent.

Do you want to take advantage of this trend in 2020 and beyond? Since it appears that recession fears are now growing, we can assume the seller’s market will not continue forever.  So it is vital the business owners act now on their exit plans.

If you are interested in learning if buyers will pay a premium for your business, you should contact us for an invitation to attend a complimentary Generational exit planning meeting. To learn more, call us at 972-232-1121, or visit our website and provide us with your contact info, or find a meeting near you. 

And special thanks to BDO for conducting such a thorough and thought-provoking CFO survey!

Note:  As mentioned, this survey was conducted before the fear of a coronavirus pandemic was raised. However, the underlying desire to find talent does not change and acquisitions are a good way to address this need.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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