Obtaining Premium Value for Your Company
North American merger and acquisition (M&A) deal volumes slowed down in first quarter 2022 after a record-setting 2021. Year-over-year deal volume decreased 11.5% over first quarter 2021. Deal activity, nevertheless, was still in line with that of the last five years. With strong corporate balance sheets and record private equity (PE) dry powder
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Expect M&A Deal Volume in 2022 to Be at Pre-Covid Levels
North American merger and acquisition (M&A) deal volumes slowed down in first quarter 2022 after a record-setting 2021. Year-over-year deal volume decreased 11.5% over first quarter 2021. Deal activity, nevertheless, was still in line with that of the last five years. With strong corporate balance sheets and record private equity (PE) dry powder
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M&A Middle Market Update Q1 2022
North American merger and acquisition (M&A) deal volumes slowed down in first quarter 2022 after a record-setting 2021. Year-over-year deal volume decreased 11.5% over first quarter 2021. Deal activity, nevertheless, was still in line with that of the last five years. With strong corporate balance sheets and record private equity (PE) dry powder
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10 Ways to Position Your Business for a Successful Sale
Use this checklist to ensure your company is ready to go to market and positioned to realize maximum value
While you may be confident in the unique advantages and future prospects of your company, most potential buyers will need to be convinced beyond a doubt. Strength testing your business before approaching buyers is critical. When your company’s information and outlook are transparent, buyers will compete to buy it, driving price and favorable deal terms for owners.
Today’s market for healthy, privately held companies still favors sellers. There is a record amount of buyer cash looking for a home and a limited supply of quality companies. If you’re considering a sale this year or in 2023, now is the time to get prepared. Start by checking these critical deal success factors:
- Obtain a realistic value range. You should have an understanding of the value range for your business and ways you can increase such value. In addition, you should confirm that such value will meet your financial objectives.
- Accurate historical financial statements. Income statements and supporting detail need to be accurate and readily available. In addition, your company’s balance sheet should be checked to ensure all assets and liabilities are captured and fairly stated. Accrual basis financial statements will be required.
- Projections for 1-2 years out should be bold but achievable. Work with your M&A advisor to develop financial projections that will be foremost in buyers’ minds when making offers. Plan to surprise only on the upside!
- Build an experienced M&A deal team. An M&A advisor with broad knowledge of the transaction process and a strong track record of selling companies to a range of buyers is key. You’ll also need a tax advisor and an attorney with a solid background in M&A.
- Select managers for an internal deal team. All operating shareholders should be involved in the sale process and it’s also advisable to enlist the support of one or two senior financial or key employees. With guidance from your M&A advisor, this can be done skillfully at the right time in the process.
- Clarify and implement your growth story. Realistic, well-formulated growth opportunities increase the likelihood of attracting premium value offers. Are you ready to present buyers with concrete expansion opportunities that could be achieved with additional growth capital?
- Identify and address potential risks. Objectively review any present or future risks associated with your business and devise strategies for mitigating them. These could include customer or vendor concentration, nexus issues, regulatory changes, employee retention, supply chain challenges, technology disruption and many others. Buyers will challenge everything; be prepared so your deal does not get delayed or lose value.
- Know your Key Performance Indicators (KPIs). Demonstrate how efficiently you run your company by setting up and monitoring a dashboard of metrics appropriate to your industry that buyers will expect to be available.
- Double down on documents. Every contract, registration, benefit and insurance plans, tax filings (last 3-5 years are typical) and other documents related to your company will need to be gathered into a virtual data room before a deal can close. Early in the process, your M&A advisor will supply you with a list of required documents.
- Fire on all cylinders as you run the business. You and your management team must stay focused on the business, driving growth and profitability throughout the sale process. The importance of meeting or, if possible, exceeding projections while your company is in market cannot be overstated.
If you’re thinking of selling your business in the near future, contact us for a preliminary conversation as to your company’s readiness for market or for a Complimentary Value Assessment.
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M&A Middle Market Q4 2021 Update
M&A Deal Activity Reached Historical Highs in 2021
North American mergers and acquisitions (M&A) deal volume hit a record high in Q4 2021 reaching over 4,400 transactions. Total 2021 deal volume of 16,718 was also a record high and a 25% increase over 2020. With easy access to capital, low interest rates, and a recovering economy, M&A globally set a new record with over $5 trillion in transaction value. The U.S. deal market’s performance was particularly prominent, accounting for $2.9 trillion in transaction value in 2021, up 55% from $1.9 trillion in 2020. The U.S. deal activity was also bolstered with sellers concerned over potential increases in capital gain tax rates and 2020 deals pushed into 2021 due to COVID.
2021 was also a banner year for the private equity (PE) industry. U.S. PEs closed 8,624 deals for a combined value of $1.2 trillion, over 50% above the previous annual record for deal value. In 2021, U.S. PEs raised over $300 billion in new capital, as institutional investors increased their alternative asset class investment percentage. 2021 was also a record year for PE-backed exits. PEs exited U.S. companies with a total enterprise value in excess of $800 billion.
The venture capital (VC) market continued at a break-neck pace throughout Q4 2021. Globally, venture capital financings set a record in 2021 with $621 billion in combined deals, more than double the $294 billion recorded in 2020. Venture capital dealmaking in the United States reached an all-time high in 2021 at nearly $330 billion, buoyed by excess liquidity and an accommodative monetary policy. It was also the best year on record for U.S. VC fundraising, which hit $128.3 billion across 730 funds. U.S. VC-backed companies going public or being bought out led to exits worth $774.1 billion in 2021, nearly 88% of which was realized through public listings. In addition to the U.S. IPO market, special purpose acquisition companies (SPAC) offered a viable alternative to traditional IPOs despite tightening regulatory scrutiny.
Closed M&A Deals in North America (Q1 2019 – Q4 2021)
Record Dry Powder and Corporate Cash Continue to Drive M&A Activity
In addition to 2021 being a record year for PE fundraising and capital deployment, global PE dry powder ended 2021 at $2.3 trillion, 14% higher than the start of the year, signaling another favorable year for M&A in 2022. As of June 30, 2021, U.S. PE had an all-time high in capital overhang of $827 billion.
US PE Capital Overhand ($B)
Cash on the balance sheets of nonfinancial companies in the S&P500 swelled to over $2.0 trillion, compared to $1.5 trillion before the pandemic crisis in early 2020. Just 13 non-financial companies in the S&P 500, including tech giants such as Apple (AAPL) and Google-parent Alphabet (GOOGL), are sitting on cash and investments of more than $1 trillion, according to S&P Global Market Intelligence and MarketSmith. Cash-rich companies will continue their spending in 2022.
US Nonfinancial Corporate Balance Sheet Cash ($B)
2022 Outlook
After a record year for M&A, dealmaking will continue to be robust in 2022. The factors that contributed to the record M&A market in 2021 will remain influential for dealmaking in 2022. Unprecedented dry powder, record levels of cash on corporate balance sheets, low cost of debt, a strong macroeconomic climate, and intense demand for technology disruption and innovation. The fierce competition among corporates and PEs will keep multiples high for sought-after assets. However, increasing interest rates during the year may soften valuation multiples.
Some headwinds such as persistent inflation, rising interest rates, supply chain and labor shortage challenges, as well as softening equity markets, may have a moderating impact on M&A transaction volume. As the market continues to be driven by these macrotrends, we are bullish on M&A activity in 2022, especially in the middle and lower middle market.
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