Inkling to Exit Your Business? Part 2 / by Kerri
RBS Citizens and Forbes Insights recently produced a new survey entitled Middle Market M&A Outlook 2012. http://images.forbes.com/forbesinsights/StudyPDFs/RBSC_MiddleMarket_M&A2012.pdf . They surveyed the buyer market for M&A (Mergers & Acquisitions) activity.
If you are the CEO of a growing business with even an inkling to exit your business in the near future, take note of these findings. Their insights and commentary are equally useful to exiting CEOs as prospective sellers into this market.
Here are more of their findings:
There will be deals. One in three executives said they were likely or very likely to acquire one or more significant assets over the course of the next year.
Most express a merely opportunistic approach. About one in four executives described their current orientation toward transaction markets as proactive. Their companies are poring over balance sheets and income statements, looking for viable external targets or even potential internal divestitures. Well over half said [that] though not actively seeking a transaction, [they] would be willing to act should a compelling proposition arise.
Synergy, though challenging to achieve, still drives valuations. Synergy, the idea that one plus one can equal an amount greater than two, can be triggered, within a deal premise. Synergies come in two basic forms: cost and revenue. While both can be difficult to achieve, and both are often overestimated; it is revenues that sophisticated acquirers say should be treated with particular skepticism. Two out of three executives said that synergies were a vital component of valuation.
Executives perceive a range of integration challenges. One reason that executives tend to prefer organic growth is that bringing an acquisition online requires considerable focus and resources. Survey participants noted that a number of areas are, at best, difficult to integrate. The areas of greatest concern include IT, sales and marketing, product development, and manufacturing.
Deal practitioners are using a wide range of tools. In performing valuations, executives use multiple lenses. Tools include everything from discounted cash flow models to comparisons of comparable transactions, public company valuations, payback periods, and even real option and multi-variable simulations.
Consultants matter. Faced with the challenges of assessing opportunities, performing valuation, or financing a deal, executives recognized the need for a mix of both in-house and external resources. For those companies most active in the market; valuation, financing, and due diligence are the areas where specialists are most often tapped.
We’re not for sale. Three out of five executives bluntly stated their companies were not for sale. Still, the remaining two out of five said they were willing to entertain the idea of being acquired. Only a tiny fraction of survey participants described themselves as anxious. And a note to any would-be sellers: the vast majority of executives viewed carve-out financial statements as at least somewhat or very important. Or put another way, the preparation of reliable carve-out statements can help to ensure a quicker transaction.
Reread these key findings in the context of your business and you being the seller who is being targeted. How can you use these insights to strengthen your own company’s position?