I have highlighted below some useful trends to be aware of in the M&A market, as we move toward a period of improved confidence and increased value.

Direct approaches

Business owners are still receiving direct offers, which is both encouraging, and flattering. It remains important to understand what experienced buyers will expect, and to ‘play your hand’ well.

Price will be based on a multiple of earnings, adjusted for surplus cash, after debt and working capital have been provided for. However, buyers are still wary, leading to the following:

• the definition of debt may be wider than you expect;
• working capital requirements may include investment for future growth;
• more of the price may be moved into a deferred earn-out.

Auctions and hybrid deals

M&A advisors continue to encourage auction processes (multiple buyers bidding for a target), to create competition and increase prices. However, experienced buyers in the current market refuse to be rushed, which can produce a ‘hybrid’ process.

Instead of a preferred buyer completing quickly, having based their ‘best and final’ offer on a seller diligence pack, many preferred buyers are insisting on time for additional diligence. This extends the deal process, and allows more time for negotiation.

As fear of missing out increases, deal times will reduce, and sellers position will strengthen.

Preparation or opportunistic?

Buyer confidence can still be impacted by many things, some unrelated to the target business (cost of their own borrowing, or shifts in global supply chains). Sellers need to have resilience and determination to find the right deal, but here are some issues to think about:

• there can be real value in controlling your own data (which can be re-used/updated);
• it is easy to be drawn into a poor deal by an unsolicited offer;
• persistence, and clarity of thinking, will win the day;
• if you are unprepared to receive a great offer, because you don’t recognise it as such, you may lose the opportunity.

If you would like to discuss any of these themes further, please get in touch with either:

Jonathan Grant, Partner and Head of Corporate
Mobile: +44 (0)7912 087173
E: Jonathan.Grant@dmhstallard.com