Last week, Axial posted a list of “14 Must Read Quotes from 1H 2014,” which included my thoughts on top trends impacting deal flow quality and price. The list includes a variety of insights and developments in M&A.
I thought I’d highlight a few of what I thought to be the most interesting and relevant points for my clients:
1. Quality of Earnings Reports: Expect that buyers will want to do a Quality of Earnings Report as part of the due diligence around a transaction. This has become a virtually mandatory part of every deal.
2. Aligning interests: Buyers want to buy companies whose interests align with theirs. Sellers should want the same thing from their buyers. Make sure to spend a lot of time getting on the same page as your transaction partner. Alignment is the most important part of the transaction.
3. Search funds changing: There are a number of search funds in the market that are partnerships between young and energetic executives and one or two committed capital partners. These partnerships are potentially attractive buyers.
4. Big firms moving down market: New PE firms abound in the marketplace, which is causing increased competition for deals. The result is that established firms are looking down market for deals.
5. Solid Business plans are attractive: Not surprisingly, PE buyers seek companies that have a solid business plan and are scalable. Having limited distribution that can be expanded helps as well.
6. Go broad in your search for buyers: 40-45% of transactions are made with buyers that aren’t on bankers’ top tier buyer list. Don’t limit yourself to a select group of buyers – go broad.