A few months ago, Deloitte released their annual M&A outlook for 2016. The overall report highlighted a number of trends that have played out this year. It was based on surveys of 2,300 U.S.-based corporations and private equity firms, two groups that acquire the lion’s share of privately held companies in America. The quality of the research and the way it has largely held up as the year progressed speaks volumes about the breadth and depth of the survey and its respondents.
Although all of the information was quite on point, one survey result really leaped out at me. According to their survey:
Corporations see an increase in both smaller strategic deals and major transformational deals. As respondents look at the next 12 months to take advantage of favorable opportunities, 34 percent will look for smaller strategic deals (up from 26 percent in 2015) while another 26 percent indicate they will seek major transformational deals (up from 21 percent in 2015).
Quite often folks attending our exit planning conferences ask us this question: Who acquires smaller companies? Is there a market for a business of my size? Now of course, at that point in our relationship, it is impossible for us to say who would acquire a specific business.
However, what we can say with great confidence is that buyers are very interested in smaller businesses (valuations below $100 million). In fact, history shows that even though billion-dollar transactions get the majority of press coverage, the reality is the majority of deals closed are valued well below $100 million and in fact even lower, valued below $25 million.
This surprises many attendees at our workshops, but the reality is buyers have learned over the years that post acquisition integration of a company valued below $50 million, let’s say, is far easier than a merger of equals well above that level. It is simply far more effective to acquire a number of smaller firms over time than to try to hit a home run with one very large transaction.
If you would like to learn more about why smaller companies are attractive, I invite you to attend a Generational Equity M&A workshop. We hold these regularly throughout North America and they are designed to be highly educational for business owners.
To learn more about them and our services use the following links:
And if you would like to download the entire Deloitte report, you can do so here: Deloitte’s M&A Trends Report 2016.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
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