Despite concerns in the United States and the world about general market conditions and a possible recession on the horizon, as of this writing, we are still in a period that can be described as a “peak M&A” period, during which private mid-market M&A transactions are as active or busy as any market. during the past twenty years. (For reference, a mid-market merger and acquisition usually means transactions between parties with annual revenues of at least $5 million but less than $1 billion.)
While the actual last peak moment for mid-market M&A likely occurred sometime in late 2021 or early 2022, there’s no indication when that volume will drop significantly. This article describes what today’s peak M&A environment means for the market, for legal advisory services and other deals, and for business owners looking to sell.
The pace of negotiating transactions, practicing law, and mergers and acquisitions seems to be accelerating with each passing year. With such a very high volume of deals, one would think that the pace of deals should be moderated somewhat since business development leaders, investment bankers, lawyers, accountants, and others involved in deals are seemingly limited resources. Considering that bandwidth and hours per day are also a limited resource, one might also expect that the time from LOI execution to closing might be longer compared to the less active periods. This was not the case during this heyday of mergers and acquisitions. There was no adjustment whatsoever in deal speed, expectations, or in particular the ‘closing speed’.
On the contrary, the increased activity during this peak M&A period accelerated the pace further due to the desire of sellers and buyers to complete transactions faster. This is no doubt partly due to the desire to get the deal done and funded before general conditions, particularly the credit markets, which are likely to deteriorate materially, get worse. Basically, it looks like we’re in something of a FOMO (Fear of Missing Out) market.
For sellers, this means that it has become more important to be prepared to manage the inherited distraction and challenges of running a business in conjunction with being involved in the sales process, with the expectations of accelerated due diligence and an accelerated transaction schedule adding to the tension. Ensuring you have sufficient internal resources to handle accelerated due diligence and negotiation while managing your day-to-day business has never been more important.
In addition, choosing the right advisors and deal team is crucial in this period of peak mergers and acquisitions. While interviewing a potential advisor (or investment bankers and other advisors), clients need advisors with the right skill set, experience, marketable fees, and ability to get the deal done. An honest conversation about capacity with potential advisors has never been more important. Here, as always, sellers want to deal with the required advisors because if a company isn’t in demand (especially during the height of M&A), it doesn’t speak well of the company.
Sellers should also make sure that other attorneys or consultants promoting the deal will actually be working on the deal and available to them as a priority — not just delegating the file to less experienced attorneys or consultants. This is why finding the right counselor who has the required level of sophistication, and who is also capable enough, is so crucial. Simply put, business owners who deal with advisors need to make sure they are not being marketed and sold to Team A when they are already getting Team B. They also need to ensure that they choose advisors that they will consider a priority client.
Despite concerns about general economic conditions, the current mid-market M&A environment remains an attractive landscape for sellers considering a sale. Sellers must be nimble and willing to act quickly, be able to manage inherent distractions when going to market and choose legal and other advisors more carefully than ever to ensure they can take advantage of conditions that remain favorable to sellers seeking a potential exit.
Frank Wardija is a member of the Mergers and Acquisitions Practice Group at McDonald Hopkins. Call him at [email protected] To learn more, visit mcdonaldhopkins.com.
This content is copyrighted by McDonald Hopkins LLC. all rights are save. This article is designed to provide current information regarding important legal developments. The foregoing discussion is general information and not specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your own legal counsel before using this discussion as the basis for a particular action. This material is not intended to create an attorney-client relationship with McDonald Hopkins LLC, and your receipt of it does not constitute a relationship.