Driving value through M&A – beyond the figures
In our latest journal, Elliott Dodds explores the value drivers in M&A for buyers and sellers beyond the figures to ensure shareholders find the right home for their business.
Whilst the bulk of M&A strategy is built around acquiring businesses that can add to an acquirer’s financial strength, there are a myriad of other drivers that can impact value and have a significant impact on the success of a transaction.
Buyers and sellers will have their own views on what is most important when selecting a potential partner. Typical value drivers can include:
What buyers look for
- Additive client bases in new verticals – acquirers will place more value on target businesses that can bring a portfolio of fresh clients into the business that would otherwise be difficult for the acquirer to reach.
- Complementary service offerings – targets that add extra service lines to the acquirer’s existing offering, allowing the combined business to cover a greater proportion of a market’s value chain will typically command significant value, particularly when developing such capabilities in house would be an uncertain and time-consuming undertaking.
- New geographies – setting up operations in new markets can be a challenge, particularly when the business lacks local market knowledge and industry relationships.Acquiring a complementary business operating in a new market can therefore be an attractive M&A option, with the acquirer not only gaining scale quickly, but also the local market presence and experience to make the expansion a success.
- Talent – given the competitive state of labour markets today, acquirers are frequently viewing M&A as an efficient way of “acqui-hiring” new talent into their businesses quickly and at scale. In these cases, underlying profitability and commercial scale can be far less of a priority to acquirers compared to the opportunity of adding new skill sets that can support the wider group’s operations right away.
What sellers should look for
- Cultural fit – selling a business means moving your potentially long-serving team into a new environment. Significant importance is often placed on the buyer’s long term plan for the integration of the seller’s employees into the wider business to ensure a smooth transition, to the point where more lucrative offers are disregarded when such plans are not prioritised. This is typically impacted by the level of control maintained by the sellers post transaction and should be considered carefully as part of any offer received.
- Access to new markets – expanding into new markets overseas can pose a significant risk to owner-managed businesses. An acquirer with existing operations in target markets can offer sellers a headstart on their next phase of growth, which is particularly beneficial when overall deal value is contingent on an earn-out structure.
- Operational support – owner managed businesses can often grow to the point of acquisition with a limited level of back-office operations. Whilst effective in growing to the point of acquisition, these lean structures can limit the business’ ability to grow beyond a certain scale and support operations across different regions and marketplaces. Finding an acquirer with significant M&A experience, including post-deal integration, can give sellers the confidence that their business can be supported on the next stage of their journey. In addition, if the buyer possesses a deeper talent pool that is capable of delivering a broader range of services to the seller’s existing clients this can help to accelerate growth post-deal.
As trusted M&A advisors, we help our clients consider these additional drivers along with the financial aspects of any deal, to ensure that shareholders find the right new home for their business that creates long term value for them and their employees.