Get the Right Value – Don’t Do It Alone with One Buyer
Financial buyers deploy significant resources to contact private companies to purchase a company below its true market value. Before agreeing to sell, here are some important Do’s and Don’ts for sellers to consider.
As a Seller: Questions You Might Ask Yourself
- Why would any buyer pay the high end of their value range or offer their best terms if there’s no competition and/or no knowledgeable M&A advisor negotiating on behalf of the seller? The fact is: no unchallenged buyer would pay top dollar.
- Should you directly negotiate the value and major deal points in the sale of your company? No, this is not your expertise and selling your business is probably the most important financial transaction of your life. You need an advocate with decades of M&A experience.
- Should you sell your company to a buyer who has approached you and this is the only offer you have? Maybe, but is there certainty to close? Is it the best fit available? Can value and terms be improved, or will another buyer pay more or be a better fit for you and your company?
- Should you pay a full M&A advisory fee on a deal where you are already talking to a qualified buyer? No, you shouldn’t. In this situation, our firm may negotiate only with the existing buyer and would adjust our fee accordingly. However, if we contact other buyers, and a deal is done with one of them, then yes, a full fee is warranted.
Call a Specialist
Despite ongoing macroeconomic uncertainties, 2023 is expected to offer strong demand from buyers for companies in the lower middle market (under $200 million in annual sales). Various types of buyers, especially private equity firms, will no doubt be contacting you to express interest in acquiring your business.
Before you respond to these inquiries, check with us. PKF Investment Banking can help drive up value, improve terms and evaluate fit and certainty to close. We do this by being your advocate, knowing the market and, when appropriate, quickly and confidentially contacting a select group of additional buyers.
With a high-quality M&A advisor in the picture, the “one-buyer” is presented with the possibility that we will run a full marketing process if he or she is not willing to agree to the deal that is right for you.
Reaching a Better Deal
Here are two examples of “one-buyer” deals we negotiated:
- The deal already on the table with a qualified buyer was improved by 20% and then closed within
60 days. - The deal already on the table had a value that we deemed was too low. After an efficient
marketing process, the original buyer improved their offer, yet ultimately lost out to another buyer
who was not only a better fit but paid a higher value by several million dollars.
Team Up with Pros
Our investment banking team is comprised of senior-level professionals with decades of M&A experience across a range of industries. We’re not cookie-cutters − our approach is tailored to each engagement. Our commitment is to be your trusted advocate.
Without competition or proper M&A advisory representation, selling to a buyer on your own can result in money left on the table and/or deal terms that fall short of what you should be receiving. We can help to ensure you obtain the best value and terms.
Contact Us
Robert Murphy
Senior Managing Director
rmurphy@pkfib.com
561.337.5324 | 201.788.6844
About PKF Investment Banking
PKF Investment Banking is the investment banking affiliate of PKF O’Connor Davies. Whether a business owner is ready to sell the company or seeking growth through acquisition, our investment banking team is committed and credentialed to help owners achieve their objectives. Our investment bankers provide guidance through every step of the process and bring the expertise to enhance certainty to close – while always staying focused on maximizing the value derived from the transaction. The PKFIB team has closed over 200 successful M&A transactions across many industry verticals.
Securities-related transactions are processed through an unaffiliated broker dealer, Burch & Company, Inc.
PKF O’Connor Davies, LLP is a full-service certified public accounting and advisory firm with a long history of serving clients both domestically and internationally. With roots tracing to 1891, the Firm has 19 offices in the United States and abroad with more than 1400 professionals who provide a complete range of accounting, auditing, tax and management advisory services.
Our Firm provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting of any kind.
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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
Read MoreExpect 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
Read MoreM&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
Read MoreM&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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