Is the M&A market in a "new normal"?

Overall deal process

There is no doubt that transactions have been missing the in-person contact, which is crucial for building relationships between buyers and sellers. However, it’s clear that the agility and flexibility ensuing from the use of virtual meetings will mean they’ll continue to play a part in dealmaking going forward. While not a replacement for in-person meetings, they easily enable parties from all over the world to connect in an instant. This has smoothed the process and opened up more doors for an even greater level of cross-border transactions. Our team has experienced this directly with recent UK-US transactions completed with ease. 

Deal structures

When the M&A market re-emerged last year after the initial impact of the pandemic, there was discussion about the greater emphasis buyers were putting on earn-out structures and the additional work going into COVID-19 adjustments, with the notable coining of the phrase EBITDAC (Earnings Before Interest, Tax, Depreciation, Amortisation and Coronavirus). However, I still view buyers as falling into two broad buckets, which is unchanged from pre-pandemic trends. 

The strategic buyer

This type of buyer understands the value in the company, and the synergies it will bring. Their approach to valuation and structure is typically simpler, with fewer complex areas to negotiate, and therefore often a more straightforward process. This is of course dependent on many factors, including their understanding of the sector. 

A financial buyer

The second type is a financial buyer, or one who follows a specific structure to pricing on a deal. They tend to take a more formulaic approach to valuation, sometimes due to fund cycles and demonstrating a return on investment for their investors. These buyers often (though not always) carry out a more in-depth financial analysis of the company, even prior to exclusivity and a due diligence process. 

From what we’re seeing in the market today, though there will be exceptions and limitations depending on the specific deal, these two main categories of buyer still hold true.

What does this mean for selling your business?

The appetite for doing deals remains strong in this “new normal”. Certain aspects of the market, such as deal structures and types of buyers, remain unchanged, while others have positively evolved i.e. the deal process now tends to be more focused and more efficient. If you are looking to transact, our view is that now is a great time to benefit from an attractive “new normal” in the M&A market.