The latest trends in M&A (Merger & Acquisition) have shown that North America has seen a drop in overall activities this year, as both valuations and volume are down. In today’s analysis, we’re going to look into the reasons for this M&A downturn and consider ways that you, as a seller, can make sure prepared for any environment in the future. First, let’s get into the specifics of the downturn so we can better understand some of the mid-market trends that are going on right now.
2016 M&A Downturn – the Specifics
Just in the first five months of this year alone, the value of mid-market deals that were done in the region fell by 10% YoY to a total of $56.9 billion, and volume dropped all the way down to 655 deals, from its original total of 896. While it used to be an environment ideally suited for sellers, as of late, it’s become more of a buyer’s market. The good news is that sales can still easily be made, even in this hostile environment we find ourselves in. The only thing that determines whether a sale will be made or not is how a company is going to position itself in this ever changing environment. Now as we’ve identified some of the specifics when it comes to the M&A downturn we’ve seen this year, let’s take a look at specific steps that a company can take to position themselves as a successful seller in this tough market.
Strategies to Employ as a Seller
First of all, as in every business venture, it’s important to make a good first impression. This can involve figuring out their operating expenses, so they know what they’re getting into before engaging in the market. They should also get rid of any non-operational expenses and make sure that they have a proper headcount in their ranks. They should also make sure that they have plenty of growth opportunities for the future. It’s important to trim the fat so to speak and get rid of any extraneous expenses so you can be sure your company is operating as lean as possible.
If your company’s going to succeed in the marketplace, it will have to set itself apart from the rest of the competition. Along with this, you will have to convince buyers that you’re a defensible company, and then you have a stable level of cash flow on your records. You might even have to look into something like an earn-out or equity roll over to make sure that you’re efficient and competitive. To get these things done, it’s imperative that you have a proper management team in place beforehand. Consider employing consultants, attorneys, and M&A advisors to provide your company with a team of experts who can help you out tremendously. The report can be found here.
In this hostile environment for sellers, it’s really important to ensure that you’re keeping up with the competition by always being prepared. You’re going to want to make sure that you’re networking with other intermediaries as far ahead as years before you launch any marketing process. You should also focus on the main things like customer and supplier relationships, market dynamics, business operations, and growth opportunities. Focusing on these key areas can help you create real value before a sale is finally executed. All of this is going to help you to build a better business in the future, and you can be sure that investors are going to notice these things, underlining their overall importance.
Be ready and willing to adapt
It goes without saying, but what works for one industry is not always going to work for another in M&A, and even strategies within the same industry are going to be fundamentally different from year to year. Also, don’t forget that your sale process is very important as well. Many buyers aren’t going to want to deal with an auction process that they have a little process of winning in the end. Instead, buyers want a company who’s going to work with them on a one on one basis, and they will be willing to pay a high price to do so. So it’s in your best interest to focus more on delivering a custom tailored approach to target individual buyers instead of broadly considering many different buyers.
This year’s M&A trends: a surmountable downturn
So, while things are looking a bit tight at the moment for sellers, you can see that there are plenty of opportunities to surmount what seem at first glance to be pretty insurmountable obstacles. By employing the strategies we’ve talked about, you will be able to set your company apart from others out there and ensure that you will not just survive, but thrive for the foreseeable future.