Global M&A deal value nearly reached a 10-year low in Q3 2023 (Q2 2020 excepted). Deal count and total deal values both declined, as shown in this graph produced by Pitchbook. And these declines were evident across almost all most industry sectors and among all types of acquirers and sellers.

However, several factors are pointing to a recovery in M&A activity in 2024. The global total of $1.4 trillion in unspent PE dry powder is just 9.7% shy of its all-time high, and an even larger cash pile is on the books of corporations, positioned for new deals. There is also pressure building on the valuation front. Public markets are looking expensive again relative to private markets. Lower private-market valuations may spur rich public strategic buyers to scoop up private targets.  Also, a halt in interest rate hikes or reversal would put less upward pressure on borrowing costs, which have been a major headwind for dealmaking this year.

If you’re contemplating a sale, we would be happy to discuss current market conditions and whether the time is right to achieve your goals.

Al Statz is the founder and President of Exit Strategies Group, Inc. For further information on this subject or to discuss an M&A, exit planning or business valuation question or need, Email Al or call him at 707-781-8580. 

A multiple is a way to measure how much a company is worth. If a company has $2 million in EBITDA and it sells for $10 million, we say it sold at a “5 multiple.” Multiples are used as a valuation tool by analyzing the multiple similar companies obtained in a sale.

For example, if a similar business sold in your industry for 6x EBITDA, valuation analysts will use that as an indicator in predicting what your company could sell for in the open market.

Do you have friends who’ve shared their multiple with you? Convinced your business will earn the same? Be sure you’re not comparing apples to oranges. We can help.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

As an owner, one way to maximize value in your business is to demonstrate that you’re not the smartest person in the room. In an ideal state, you work yourself out of a job, moving on to an advisory role while your management team runs day-to-day operations.

With that said, it’s equally important that your goals and values are in sync with your managers’.  When selling a business, you want to show buyers a positive work culture in which team members work well together and make each other better.

Over the years, we’ve seen gifted people who are very good at doing their technical jobs, but who are either poor managers or don’t get along with ownership. As an owner, that’s a tough position to be in. Do you accept the conflict if the business is continuing to make money, or do you replace management in hopes of finding a better personality fit?

If you find yourself in that scenario, you have a couple of options. You can replace management, you can try to fix the culture issues, or you can go into a sale process being upfront about team dynamics.

The first option, replacing management, could be difficult as the talent market tightens. Moreover, you should try to complete any key staff changes at least a year before you go to market. (Keep this is mind if your management team is nearing retirement as well. You don’t want to lose all your key leaders right at the time you yourself want to exit the business.)

The second option is to address the cultural issues with your existing team. You might start by looking at your own leadership style by working with an executive coach. Or, bring in a consultant like SM Advisors or Initiative One to address team issues. Some outside perspective and consensus-building can go a long way toward building a shared vision.

Finally, you can go to market, acknowledging that team dynamics are a weak spot for your business. It’s very tough to hide in-fighting—conflict almost always come out during the sale process.

In this scenario, you might actively partner with management employees, positioning the sale as an opportunity to find new ownership that better fits their vision for the business. This is a wise route if management would be particularly hard to replace. Key employees who feel shortchanged or undervalued can chase away buyers, holding your deal hostage in exchange for a bigger salary, bonus structure, or even equity.

Alternately, you can work with potential buyers to pinpoint personality misfits that a buyer could better fill with their own people. If your team is dysfunctional but profitable, some buyers will see that as an opportunity to grow even more, once team dynamics have been addressed.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.

Deciding to pursue a merger or acquisition can be a complicated process fraught with risk. Even when the financials look good and the potential rewards seem great, there are several reasons why a buyer might decide to walk away from a deal. Understanding these reasons can help sellers prepare for negotiations and improve the likelihood of a successful outcome.

Here are eight common reasons why M&A buyers might decide not to proceed with a deal:

1. Big Surprises in Due Diligence:  During due diligence, the buyer may discover that the target company is not what they expected. This could be due to operational issues, poor recordkeeping, inadequate systems, or other concerns. If the buyer believes that these problems make the investment too risky, they may walk away. That’s why it’s important to “go ugly early.” In other words, put all the negatives on the table right away, to reduce the chance of surprises ruining a deal later on.
2. Financial Concerns:  When evaluating an opportunity, buyers are looking at a company’s financial health and future earnings potential. If, during due diligence, they find significant financial issues, such as declining revenue, over-aggressive addbacks to prop up EBITDA, or inaccurate financial statements, the buyer may abort the deal process.
3. Cultural Red Flags:  An acquisition involves the integration of people and organizational cultures. Buyers and sellers should have had culture discussions before the letter of intent stage. But sometimes new information reveals itself as the parties work together. If the buyer perceives significant cultural misalignment, they may walk away to avoid potential integration challenges or disruption to their own corporate culture.
4. Liability Concerns:  As part of due diligence, buyers look at a range of risk factors. They don’t want to face an unexpected lawsuit or deal with the aftermath of someone else’s improper corporate conduct. Concerns here include ethical and legal issues, including non-discrimination and employment practices, regulatory requirements, and contracts, as well as tax liabilities.
5. Environmental Issues:  Many transactions will include an environmental site analysis. Even if you aren’t selling the real estate with the business, the buyers may want assurances that the business hasn’t been the source of any unknown leaks or contamination. Unfortunately, environmental events do occur, and some sellers find themselves tied up in years of environmental remediation issues before they are able to alleviate buyer worries and put their business back on the market.
6. Strategic Shifts:  Changes in a buyer’s strategic priorities can prompt them to walk away from an acquisition. Sometimes a buyer’s board of directors or investors don’t approve the deal. Something as simple as the buyer losing a key executive who championed the deal can sideline an otherwise healthy transaction. We’ve seen it happen!
7. Unresolved Negotiation Issues:  Negotiating an M&A deal requires reaching consensus on a wide range of deal terms, including price, payment terms, contractual obligations, warranties, working capital, and other deal-specific issues. If the buyer and seller cannot resolve key negotiation points, it can lead to deal termination. Resolving these issues can be a critical point of failure for many deals. That’s why it’s a good idea to work with an experienced M&A advisor and attorney who knows what’s normal and customary for your industry and won’t obstruct your deal with overzealous demands or omit critical deal terms. You want an attorney who will protect your interests, but you also want a proven deal maker, not a deal breaker. This is also why you want the buyer to outline as many deal terms as possible in the letter of intent (LOI). At the LOI stage, you still have other buyers at the table, giving you more leverage and options.
8. External factors:  Finally, some deals get foiled by external factors outside everyone’s control. For example, COVID-19 killed or delayed many deals. The dot.com and housing busts, 9-11, political shifts, supply chain disruptions, strikes, rising interest rates—these are just some of the many external events that have delayed deals or stopped them in their tracks.

It is important to note that walking away from an M&A deal can be costly for both the buyer and the seller. The buyer loses the money they have spent on due diligence, and the seller may lose the opportunity to sell their company. However, in some cases, walking away is the best option for both parties.

Before entering into an LOI with a buyer, your advisors can help you check their refences and deal history. You want a buyer with a track record of completing deals and staying true to commitments.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.