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A Pandemic’s Impact on M&A

By Generational Equity

09/07/2022

One of the most surprising results of the worldwide Pandemic that began in 2020 has been the tremendous resurgence in M&A activity since 2021. According to a recent article in the Washington D.C. Business Journal:

As the pandemic has evolved, so have its effects on nearly every corner of society. One of the most interesting and perhaps surprising Covid impacts on business has been in the area of mergers and acquisitions.

According to KPMG, M&A transactions in the United States totaled $2.9 trillion in 2021 – up from $1.9 trillion in 2020. What’s more, deal valuations also rose to new heights in 2021, with 80 per cent of executives surveyed saying they expect deal valuations in their industries to continue to rise in 2022.

Several factors are driving this M&A expansion including:

  • M&A as a solution for labor shortages
  • A rebuild-and-recover strategy using M&A
  • M&A as an answer to supply chain disruption
  • An exit strategy for private owners via selling to a third party
  • M&A as an inspiration for transition planning

Ultimately, uncertainty always creates opportunity. As Warren Buffett once said:

Be fearful when others are greedy, and greedy when others are fearful.

During the current seller’s market, it is time for business owners to be greedy and, using the five driving factors above, find an optimal buyer to match the opportunities in your business.

You must ask yourself, in addition to my tangible assets (cash flow, leases, expected growth, etc.) what INTANGIBLE assets does my company possess that would address one of the five (or more) criteria above?

The reality is that you probably have some pieces of all five sitting in your Company – you are just too close to recognize them. If your business can answer the needs of buyers, you could be sitting on a gold mine of value.

But How Do You Know?

That is the challenge……

Far too many business owners discount the value of their companies because they don’t think like buyers. A buyer’s primary goal is the future; sellers spend too much time focusing on the past, reminiscing about the good times, fretting about the bad.

Buyers think only of how a business can meet one or more of the current M&A drivers listed above, and ultimately grow profits.

So, what does your company have to offer buyers? What sort of intangible, off-balance sheet assets does it hold? How can you value them? Which buyers are going to offer you the best option?

The Washington D.C. Business Journal has this kernel of wisdom:

With so much capital being infused into the markets, it pays to be prepared for unsolicited inquiries, even if you’re not currently entertaining offers. A good starting point is to obtain a current business valuation. The business purchase timeline has accelerated drastically, which makes it important to have a good idea of the value of your business before you find yourself weighing an offer.

That statement is so critical, we can’t emphasize it enough….

History is replete with business owners who take far less than their company is worth from an aggressive, driven buyer. If you have no idea what your company is worth, how can you even entertain offers, much less approach a buyer pool with your investment option?

Simply put, you can’t…

That is one of the primary reasons why the Generational system has been so very successful over the years. Before we take a client to market, we do a thorough valuation to determine the current economic value of the business (after carefully recasting its financials). The result is that every seller has a range of value upfront and can decide on one of two options:

  • Grow the business using our consulting team to enhance its value
  • Go to market now to locate optimal buyers paying an optimal price/deal structure

Listen to what a few of our clients have said about the value of our services:

Based on the current “froth” in the M&A market, having a plan is critical or you may leave chips on the table when the first buyer gives you a call. Unless you have significant experience in the M&A process, you will be at a substantial disadvantage when these buyers come calling.

So, visit with us at one of our Growth and Exit Strategy Conferences and learn how you can identify your intangible assets and how buyers will pay you for them!

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

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