Deal activity in mid-market set to rise, say M&A advisory groups

10 November 2016

M&A advisers with a focus on mid-market deals are, across the globe, set to face a strong run in the coming twelve months, according to a survey among 250+ M&A advisers. Adapting to the changing nature of the client-demands and market dynamics will however be key in order to capitalise on the promising potential. 

The global M&A market has been riding high for nearly two years now, with more than $5 trillion in deal value recorded in 2015, making it one of the best years in the industry’s history. 2016 has seen the M&A market slow slightly, found a recent study by The Boston Consulting Group, although deal fundamentals are said to remain strong, both at the top end of the market as well as in the mid- and small-market segments of the landscape. 

A new study conducted by IR Global and the Alliance of M&A Advisors – two of the larger M&A groups* in the industry – finds that the sentiment in the mid-market, an area often overlooked by the headlines, is rosy. 91% of the 250+ M&A advisers surveyed by the firms (the survey was run in North America, Europe and Asia Pacific) said that they believe M&A activity among deals valued at up to $500 million will increase or stay the same during the next 12 months. When asked what will lead to deal activity increasing in the mid-market, respondents cited continued low interest rates (75%), large cash reserves and investment capital / dry powder (71%) and opportunities in emerging markets (69%) as the top three reasons.

Outlook for mid-market deals

“The engine room of the M&A industry is in the mid-market, where thousands of deals are completed annually of varying sizes, from less than $10 million through to $500 million. Our survey of mid-market M&A advisers shows optimism for growth in this type of M&A activity despite the political and economic instability we have seen of late”, comments Thomas Wheeler, Group Managing Director of IR Global.

Of the major factors that may upset expectations and lead to less mid-market M&A activity of most concern to respondents were economic uncertainty (85%) and volatility in global markets (62%).

Reasons for higher demand

Cross-border deals

Globalisation continues to dominate deal strategies. According to 95% of the M&A advisers, the number of cross-border mid-market M&A deals over the next 12 months will stay the same or increase. “With the need to create new opportunities in emerging markets, there is a strong an appetite for cross-border deals in the private market”, says Wheeler. Other factors driving international deals include the continued advance of the free flow of capital and the effects of trade boundaries which are materialising across the globe.

Cross-border deals however come with additional complexity vis vis a national transactions. Culture is cited a key concern – 56% of global respondents named country culture and differing business practices as their main concerns when advising on cross-border deals. The stage where most problems occur are the due diligence process (52%) and post-closing integration (47%).

Geographical variances

Despite the political uncertainty destabilising the European Union at present, including tensions around Russia and the Brexit vote, 64% of respondents believe Europe will see the most mid-market cross-border M&A activity during the next 12 months. 60% of respondents based in the US expect their M&A advice to involve Europe, whereas 54% of Asia Pacific based respondents expect to advise on M&A deals in the US. The US is also important, with 45% of European respondents and 54% of Asian corporate finance experts expecting to advise on M&A deals involving the US.

Mid-market deals by region

There is, according to the authors, also an increase in emerging to emerging market deals, as fast-growing economies such as India, that have traditionally received high levels of investment from the US, open up to Chinese investment.

Changing role of independent advisers

IR Global and the Alliance of M&A Advisors further find that the role of M&A advisers is seeing change. More than half of the respondents (52%) state they will need to expand their international network of trusted advisers to offer more effective advice on the progression of deals, in a bid to accommodate for the globalising nature of transactions. Other changing aspects widely cited are the need to offer more holistic advice (51%) and the need to provide more specialist knowledge (50%), such as industry and/or functional knowledge. The most cited element refers to their heart their business – almost two thirds of advisers (61%) see their most important role over the next 12 months as helping clients to arrange deals.

Changing role of M&A advisors

“The role of independent consultants is developing to respond to changes in the marketplace. Good advisers are providing holistic support – helping their clients to arrange deals and ensuring they have the international capabilities and network in place to meet the global client demands that arise.”

* IR Global has over 850+ members globally, working across 150 jurisdictions. The Alliance of M&A Advisors has 1,000+ affiliated professionals.


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.