Entrepreneur and M&A Pulse - November 2024
It is still all about supply and demand...
OK! So, the US elections and Veterans Day have passed. (Thanks to everyone who has served and will serve.) If I had a dollar for everyone one who recently told me "I am waiting until after the election to make that decision." then I would have a trash bag full of dollar bills. Regardless of your politics, your position on the economy, or how your business and investment interests are currently doing, the wait is over. The demand for deals has been slowly increasing, and the majority of analysts are optimistic about this trend continuing.
I wrote this past spring that new business development and M&A Transactions were starting to pick back up again.? The Private Equity and Venture Capital folks have been increasing their activity.? “What is hot right now?” and “What is the M&A industry chatter about?” …are two questions I get often.? Although it may not be the most scientific way to measure business activity, discussing what is going on with active investors in the marketplace, is one of the best ways to understand the “pulse” of today’s business environment.? This is especially true if you talk to multiple people with diverse viewpoints.? I am reminded of the age-old advice on the Stock Market.? The person who is buying the stock is convinced that the stock's value is going to go up, and the person who is selling the stock is equally convinced that its value is going to go down.? When you realize that two trained and experienced business professionals can look at the same situation and then come up with conflicting advice on how that situation should be resolved, you understand that there are no easy answers. How can you be sure the time is right to move forward with the next phase of your entrepreneurial adventures? Is it the time to grow and expand? Is it the time to simplify, downsize and "hold down the fort"? Can you generate enough cash from selling all or some of your business, to fund a new business development idea? Is it time to retire or move on to something different? These are all questions that you should discuss with your CPA/Tax Expert and with other business professionals who understand the marketplace. You need to start with an overall strategy and high-level goals. The key is to make informed, risk-management-based decisions, using a diverse range of opinions and accurate data.
Recent improvements in the economy have seen an increase in activity around Joint Ventures and other partnership agreements as well.? Instead of raising capital or taking loans to expand and diversify their businesses, savvy entrepreneurs are partnering and collaborating with other companies in order to outpace their competition.? One of the reasons that there is so much buzz on Artificial Intelligence these days is that larger companies are dumping a ton of money into AI research and development, in order to hopefully get in front of the latest technological trends.? This is a great example of the challenges that entrepreneurs and start-ups face. You need multiple skill sets in order to succeed.? On one hand you need the AI and software/hardware experience, just to play in the tech space.? On the other hand, you will need very specific knowledge of your target industry in order to direct the AI in way that can produce revenue, create efficiency and generally let the robots do the busy work for your customers. ? A requirement for diverse skill sets is ALWAYS an opportunity for partnership agreements, in my humble opinion.
This is where I believe that entrepreneurs and start-ups have an advantage. If an AI company were to partner with a fintech start-up they would have both the financial and technical expertise to quickly develop new tech in an agile manner.? For this example, my guess is that new innovation is likely to be produced faster by smaller companies. A big bank that is either trying to buy a tech company as a “bolt on” and/or hiring and building a new internal development shop is not going to be able to move as flexibly in the current market.? It is a high-risk race to see who is going to evolve into the next Microsoft or Amazon style success story. ?In spite of the questionable market, true leaders will still have to make deals and move forward in order to succeed.
Finally, a more conservative approach in a still questionable market would be to develop a more long-term strategy.? If you are not willing to buy, sell or partner, then you should be looking at the strategy for where your business is going to be in 2-3 years, when market conditions might be more attractive to you.? Regularly maintaining and updating a business development strategy, as well as a business exit strategy, is crucial.? The riskiest thing an entrepreneur can do in a changing economy is nothing. If you are hoping that things change for the better, without doing any research and planning to try and make that future success happen, then your bottom line might be in for an unpleasant surprise.? Talk to subject matter experts.? Brainstorm with your colleagues.? Discuss potential projects with other business professionals and consultants.
Please reach out to me if you would like to discuss this topic or your business further. All conversations are confidential.