Bloomberg News Asks Is Your Company’s Deal Strategy on Track?

By Generational Equity

01/20/2017

This question was being asked of corporate strategics, not business sellers, but I thought our audience might like the insight into how buyers are approaching the current market. Based on an annual survey that Ernst & Young conducted of business executives in the U.S., a vast majority expect to be very aggressive during the next 12 months when making acquisitions.

This is how the article on Bloomberg.com summarized the current situation with the acquisition plans of corporate America:

Executives expect U.S. M&A activity to continue to boom in 2017, according to an E&Y Global Capital Confidence Barometer – a survey which included more than 400 executives in the United States. Companies are turning to deals in order to accelerate growth and to get ahead of changing industry landscapes.

Two critical points are made above:. First, in an era of tepid, 1%-2% GDP growth, the fastest, most efficient method of expansion is via acquisitions. This is a new reality to which corporate players are still adjusting. Secondly, industries are changing at a much faster pace than ever before. Not only is technology affecting the landscape, competition for clients is tougher than ever, both domestically and internationally. Adapting to these changes can be done most expediently via the acquisition of new markets, territories, clients, and talented employees.

Here are some findings highlighted from the survey:

• 75% of executives expect to actively pursue acquisitions in the next 12 months.
• However, they are not desperate, as 95% are willing to walk away from deals.
• 97% are using Big Data and analytics as part of their deal process (using the gut to drive transactions is in the past).

One finding in particular stands out to me: despite the fact that a huge majority will be pursuing acquisitions, executives are more than willing to walk away from deals that ultimately do not meet the return on investment (ROI) required by the board. This has enormous implications for entrepreneurs who are considering the sale of their businesses. How do you prevent a deal from dissolving?

Documentation: Firstly, you have to make sure that your documentation is in order and accurate before approaching professional buyers like these. If you don’t, and something crops up during due diligence that you have not disclosed, the deal could die.

Information is Knowledge: To find targets and close deals, these buyers are using data analytics as never before. What does this mean to a business owner looking for buyers? Plenty. Your company will most likely not be the only one on the buyer’s radar screen. They will have done their research and will have multiple options available to them. In addition, they are using key metrics during due diligence to delve into financials and operations. Again, this means that your company must be “buyer ready” and prepared for intense buyer scrutiny.

In summary, according to William H. Casey, EY’s Americas Vice Chair of Transaction Advisory Services:

If the deal markets are moderating, don’t tell US dealmakers — their merger and acquisition plans are stronger than ever.  One year after global M&A set an all-time value record, our 15th Capital Confidence Barometer finds US executives setting their own record: their strongest deal intentions since we launched the Barometer more than six years ago. Yet they are also evaluating deals more selectively than ever, a sign of a complex market but also a sturdy one.

We agree. Although we are seeing buyers getting more and more active post-election, it is clear that the days of rapid and easy due diligence are over. In other words, the days of “let’s close the deal and make sure it makes sense later” are gone. The good news is that if you are ready to market your business and close a deal, buyers are ready too. However, it is clear that having an M&A professional by your side is more vital than ever.

The Generational Group is here to help. We are the leading middle-market M&A firm in North America according to Thomson Reuters. Our dealmakers are skilled, talented, and driven to get the best deal possible for our clients. If you want more information about our services, please call me at 972-232-1125 or email me at cdoerksen@generational.com.

And special thanks to our friends with E&Y for conducting and publicizing this insightful study. You can download a copy of the entire E&Y survey here: 2016 Global Capital Confidence Barometer.

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

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