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In a recent blog we updated the changing M&A landscape for 2020. We also noted that respondents to CSA Research’s annual Global Market Study (GMS) have shown consistent interest over the years in buying, selling, or merging in response to the question, “How important will the following actions related to merger and acquisitions be in 2020?” Of the 356 respondents from the representative sample of 462, 29% said they wanted to sell, 34% would like to buy, and 30% preferred a merger.
Did COVID-19 affect the results? We analyzed responses by survey month (January through March and April through July) and combined the sell-buy-merge responses into a single group so that we could identify changes in the balance of opinion. Through March, 26% of respondents said they were ready for one of those three M&A actions. Three months later, that number had grown by 11 percentage points to 37%. Based on follow-up conversations, we would say that COVID-19 caused fear or accelerated retirement or lifestyle choices for some smaller LSPs.
That said, regardless of the times or economic climate, successful M&A for both sides requires forethought and execution. CSA Research advises companies that want to be acquired or merge to take a planned approach to selling as they make their case for why someone might want to buy them. On the flip side, we counsel LSPs that want to acquire others to incorporate acquisition into a well-thought out corporate strategy – we will discuss M&A buyer issues in an upcoming blog, “M&A: Want to Buy or Merge?” For today’s blog, let’s put aside the buyer requirements and focus on what prospective sellers must do.
With so much interest in buying and selling, why aren’t there many more transactions? It’s because many LSPs owners and executives who want to sell don’t progress much beyond wishing for some magical liquidity event. For those that do take action, we find that more than 70% of deals fail – for some very predictable reasons that we’ve identified in our research. In our report “The Owner’s Guide to Maximizing LSP Value,” we outline a comprehensive approach to selling a company. Here we summarize four basic steps from that research – they aren’t exhaustive or sequential but intersect at various points:
What to expect: If a potential seller doesn’t have a plan and can’t articulate a solid value proposition to a buyer, we send them back to the drawing board – either to further develop their strategy or to refocus their energy on fixing their business and readying it for sale before proceeding. Do not waste your time on M&A calls if you are not ready to sell.
What to look for: Find a credible advisor capable of confidentially helping you identify, vet and select the best business and cultural fit for your company. For example, we use our database of “verified LSPs” to identify best fit and eliminate non-serious prospects by requiring an upfront M&A retainer which allows us to bring to the table only one to three ultra-vetted companies ready to do business.
Where to find data: Your advisor can provide supporting information such as the average valuation multiples based on EBITDA and other criteria based on verified M&A data. More importantly, your advisor can help you get a higher valuation by identifying potential buyers who could benefit the most from your business.
What to do: Readying a business for sale isn’t an overnight proposition. Be ready to provide information and data to satisfy the buyer’s due diligence. Work with your advisor to prepare yourself and your company, do whatever you can to maximize the value of the asset.
In the final analysis, getting the wire transfer into your bank account is the only success factor that matters – and we’ve seen deals fall apart as the seller was waiting for that deposit. If you have already made the decision to sell, make a commitment commensurate with the investment and risk levels associated with that strategy. Find a reliable and trusted advisor with a reliable methodology and vetting process that can help you get a fair valuation in full confidentiality. If being acquired is not part of your long-term strategy, don’t give in to the fear that “everybody’s selling” and go further. It will de-focus you from your work, could put too much information out in the market about your business, lower future valuation, and run the risk of losing key employees and demotivating your team if the information gets out. And you can be sure that information does get out for smaller deals, so confidentiality and data integrity must be part of your M&A rationale.
Chief Research Officer
Focuses on market trends, business models, and business strategy
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