M&A preparation

Perspectives

M&A preparation in 2017

Private company issues and opportunities

Overview

Private companies are confident that corporate combinations will grow in frequency and size in 2017. The predictions for a prolonged M&A spurt follow a year in which global volume dropped 15 percent from the previous year.1 Market observers had to wait until the fall of 2016 for the environment to show measurable signs of traction. Our work with private companies reveals the depth of the pent-up demand: in our most recent M&A trends report, 70 percent of mid-sized firms expect their total number of deals to grow moderately or significantly this year. And nearly two-thirds of survey respondents expect the dollar value of these transactions to increase over the next 12 months.2

Nonetheless, a number of hurdles have the potential to upset those plans. Private companies will have to focus their efforts on strategic opportunities. They’ll need to pay close attention to the details within the structure of deals. And they’ll need to have the right teams, advisors and financial resources in place to secure and sustain their M&A endeavors.

Issues

Preparation is one of the main reasons deals sputter when they might otherwise soar. Organizations without strategic planning committees or other mechanisms to react quickly to prospects operate at a disadvantage in a bullish environment. A senior executive might appear to be the natural candidate for such transactions, but resources can get quickly stretched, leaving even the most skilled leader in a reactive posture.

“Sourcing acquisitions is complicated. You have to be consistent, keep up the frequency, and much of the time, there’s no bandwidth to do so,” says Phil Colaco, CEO of Deloitte Corporate Finance. “That’s often the reason transactions don’t go well.”

Access to financing is another consideration that determines success. For private companies lacking sufficient lines of credit or lenders skilled in the complex world of combinations, deals can often suffer or disintegrate altogether. “That adds time and effort to the process,” Colaco says of financing, adding that well-prepared acquisitive firms “have constant relationships with financing sources and have financing readily available.”

Opportunities

One of the yet-to-be-settled matters in the new administration that could spur a wave of M&A activity is the easing of constraints on regulated industry. The financial services industry in particular could see more deals with bigger price tags as regulations are revised. For instance, 82 percent of financial services firms expect deal size to increase in the coming year. But despite the predictions for an accelerating market and moves by the new administration to relieve regulatory pressure, it’s still too early to tell how the factors will interact.3 According to Colaco, “there’s a very palpable sense that people are trying to figure out what the new world is going to look like.”

Digitization is also working in favor of private businesses in the M&A environment, particularly as they look to acquire non-US assets. Our M&A trends survey revealed that 91 percent of mid-sized companies had deals among companies operating in foreign markets. The emergence of data analytics affords greater precision to the process, from identification of targets to scrutiny of financials during due diligence.4 As the flow of information becomes more sophisticated, acquisitive firms can more accurately assess the legal, currency and management considerations in cross-border transactions. “Companies are much more able to find, contact and evaluate non-US firms than they ever have been,” Colaco says.

Questions to consider

  • Is your management team ready? Do you have people in mind who could help you if you were presented with an acquisition today?
  • Do you maintain an active pipeline of acquisition opportunities domestically and outside the US?
  • Do you have a group of banks and/or advisors to support an acquisition in terms of valuation, financing, and tax advice?
  • For family-owned firms, is your ownership group ready for dilution? What would you want to gain from the transaction, and do you know what your constraints are?

Visit the Private company issues and opportunities homepage to view a list of topics.

References

1 Dana Mattioli, “Will 2017 Be the Year of the Deal?” Wall Street Journal, December 30, 2016.

2 M&A Trends 2016, Year-End Report, Deloitte & Touche LLP, December 2016, https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/ma-trends-report.html.

3 Ben Protess and Julie Hirschfeld Davis, “Trump Moves to Roll Back Obama-Era Financial Regulations,” The New York Times, February 3, 2017, https://www.nytimes.com/2017/02/03/business/dealbook/trump-congress-financial-regulations.html.

4 Deloitte, “Deloitte M&A focus on: Analytics.” https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/merger-analytics-survey.html.

About Deloitte Corporate Finance LLC

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