We listened in on this great 1-hour discussion among several corporate business development executives and Datasite?.1 ???Much of the discussion was consistent with our and perhaps readers’ assessments of the current M&A market uncertainty.? The stats justify both optimism and caution, and the panel’s discussion around what sellers and buyers can do to get to closing was particularly enlightening.? Thank you Datasite? for all you do for M&A dealmakers and for your valuable reports and these great roundtables.
- Deal Stats, Headwinds and Tailwinds.? ?M&A deal numbers (including deal “kickoffs” or new sale process starts, which were up 11%) rose in 2024 compared to 2023, and closing times shortened.? But there was a 3% drop in successful closings (due to abandoned deals or deals put on hold).? The panel of experts noted several reasons for this, from valuation gaps between sellers and buyers, to more due diligence hesitancy (especially around AI assets), to concerns around tariffs, antitrust (although this is expected to be a lesser concern than in the last administration), immigration, geopolitical worries, and government budget cuts.? Despite the positive buzz around the expected Trump impact on M&A, 2025 may be off to a slower start than in past years and the Trump impact is not yet clear.? Closing certainty has become as big a concern for buyers as sellers.? Still, as in past years, the M&A tailwinds include significant corporate and private equity “dry powder” that needs to be deployed, to the need for founders and private equity owners to achieve liquidity from sales.? As in past cycles, technology and healthcare are leading the current M&A stats.? AI is a big reason for that, but notwithstanding the appetite for all things AI, buyers are moving cautiously (perhaps not wanting to be first movers as AI still has long way to go to reach its potential) and competing AI products and services, energy demands, chip and semiconductor supply and cyber security challenges will impact and perhaps slow AI’s full commercialization. Panelists expressed a mix of optimism and cautious optimism about 2025, suggesting that predictions are difficult with so much going on.
- Increasing Closing Certainty:? What Buyers and Seller Can Control.? ?The panelists discussed that many delayed or unsuccessful deal processes (and even target integration issues) might have been avoided or addressed with earlier and more open buyer-seller communication and planning.? In our experience, it is amazing how many deals fail due to a buyer-seller failure to address the important transaction drivers early in the process.? Early discussions around valuation and terms, strategic and cultural alignment, and employee and customer impacts can help confirm buyer-seller fit before transaction expenses begin to mount, and avoid closing delays or deal inertia and help get deals closed.? As many readers know, valuation gaps can be closed with creative earn-out, deferred payments and equity rollover transaction structures.? And buyers can even win a lower valuation with more cash at closing.? Post-closing earn-out and other disputes can be better avoided with non-financial milestones related to product development and commercialization and which are easier to measure. Buyers should articulate their strategic objectives early and honestly and, equally important, listen to sellers’ non-valuation objectives, including the target’s legacy, branding, customer and employee relations, and the founders’ role during the post-closing transition (and a mutually-agreed management succession plan).? The need for confidentiality until closing should be balanced with a plan for the right messaging to employees and customers.? Buyers and sellers should discuss integration challenges and the list of things that might go wrong, and develop a plan to address those risks.?
Any M&A deal is a two-way street, which one of the panelists well noted.? It’s not just the buyer’s acquisition of a company, it’s often the founders’ or sellers’ , and always their employees’ and customers’, new home.? The “best” buyers and sellers view and manage an M&A transaction as the future partnership that it is.? Early discussions around valuation, terms and non-financial and non-legal issues can go a long way to avoiding an ambush at the closing finish line, allow for a faster run from letter of intent to closing, and build trust in that partnership so as to make post-closing integration and success a reality.? Geopolitical and global uncertainty, market factors and other external deal closing risks will continue to impact M&A.? But buyers and sellers can control many internal deal closing risks with early discussions and planning that confirm whether or not they will be a good fit as partners.? ???
