In M&A, It’s Always a Buyer’s Market

There’s an axiom often shared among M&A advisors which says that the best companies are not sold, they are bought.

But if you’re a seller – or want to be a seller sometime in the future – we think there’s a different saying that might be more relevant for you.

IT’S ALWAYS A BUYER’S MARKET.

What does that mean?  Doesn’t it ebb and flow, doesn’t it swing back to a Seller’s Market sometimes? 

Maybe.  But that doesn’t matter if you’re interested in selling your business.  As a seller, to get the best outcome, you need to prepare as if it’s a Buyer’s Market all the time – no matter what the market feels like. 

Why?  Let’s look at this from two perspectives: 

1).  The market is “good”.  There are a lot of deals in the market, a lot of good deals even, valuations are strong, a lot of buyers with money to spend, financing is cheap and available.  Everyone is busy shopping for opportunities and it feels like a great time to sell.

2).  The market is “NOT good” –companies that are active sellers seem to have more issues for buyers to contend with, buyers are much more discriminating, valuations are not as robust, financing is less readily available, interest rates are high, there are fewer sellers.

In the first scenario, there are a lot of companies actively for sale, capital is easier to come by, so Buyers have more choices - they are able to pick and choose the deal they want.  If a Buyer sees something they don’t like in due diligence, if a Seller is not truly prepared to sell, if the process is dragging out, the Buyer can simply move on to the next opportunity since there are a lot of potential deals to consider.  The best businesses, and the businesses that are best prepared, may have an easier time attracting potential buyers and keeping them engaged – as well as securing financing for the deal – resulting in a higher likelihood of a closed deal. 

In the second scenario, there are fewer companies for sale, so there is less “competition” for Buyers’ attention in the market.  But capital is more expensive so there is more pressure to get the “right” deal.  Buyers are less willing to take risks and will walk away if the deal is not right for them.  The less the Seller is prepared for due diligence, the more the Buyer will have concerns about the unknowns.  And given that Buyers are generally fairly risk-averse, if you’re not prepared to address the key due diligence items early in the process, you may not be able to hold their interest. In any market, sophisticated buyers are not afraid to walk away from deals they can’t get comfortable with.  Maybe in a good market, they’ll adjust the price in some cases, but in a tough market, they may be more willing to stay on the sidelines.

Let’s be clear – we’re not saying there is anything fundamentally wrong or concerning about your business.  We’re saying you should be ready to prove that to the buyer before you start serious discussions.

Whether you want to sell today, tomorrow, a year from now, 5 years from now, you need to prepare.  Yes, the best businesses are bought, not sold – but the best businesses are prepared to be bought when a buyer reaches out.  And the best businesses are bought regardless of the market conditions.

Looking for help in getting prepared for your M&A transaction?  Whether you’re a buyer or a seller, Amplify can help.  Get in touch for a free, no-obligation initial consultation and we can help you get Deal-Ready.

Let us know what you think – share your thoughts, feedback and tips in the comments or get in touch to start your preparation process at info@amplify-cs.com.