Written by Dave Cantin for Forbes.com
One of my best friends is an executive at a leading financial management company. We recently had a conversation about ways to improve a business. One of the critical takeaways we discussed pertaining to mergers and acquisitions is creating a strategy that is not only agile to adapt to business variabilities but also has a process that remains the same—regardless of the market segment.
Those working in M&A must remain agile and strategic, especially in a time of market fluctuations, global conflicts, inflation and other events that impact national and global economies. As the CEO of an automotive M&A firm, here are five elements I believe M&A firms should keep top of mind to maintain a growth trajectory:
Maintain message consistency.
Given the current turbulent business and economic environment, it is incumbent upon successful M&A executives to deliver a constant and consistent message that fosters more continuity for closing a successful transaction. With consolidation at an all-time high, especially in the automotive dealership M&A sector, it is essential to stay the course with steady messaging that not only addresses market and sector fluctuations but also reinforces business objectives set for the quarters and for the year by both the M&A firm and the client.
Align M&A benefits with organizational and client strategies and goals.
When considering an M&A transaction, a business needs to pair its strategy with not only the business process but also with the market demand. The entire team, including lawyers, third-party bankers, etc., require a clear idea of a business’s goals (both the firm’s and the client’s), which will aid in focusing and simplifying the work throughout the negotiation process.
Set your mission accordingly. Respect your clients, partners and staff; build long-term valued relationships at every opportunity; make excellence nonnegotiable; ensure there is one person who is part of the process in every way from the beginning to end; and, most importantly, make integrity a valued part of your business dealings.
Monitor market trends and opportunities.
The business world never stops, and along with it, opportunities for growth continue to materialize. Remaining aware of market fluctuations is paramount in capturing these opportunities. When the pandemic brought business transactions to an abrupt halt in 2020, it set in motion a perfect storm that impacted M&A.
In the automotive sector, for example, independent automotive dealers could no longer compete with the larger public companies in their local markets. When an entity has several outlets in one area, not only are there synergies across dealerships and the cars still cost the same, but also the cost of operation is much lower. It isn’t easy to compete. With PPP followed by supply and demand, dealers have made more profit than ever. On top of that, interest rates were meager, and the costs of acquisitions were low. As such, I observed many dealers that expanded out of their comfort zones into different geographic markets in order to grow their companies.
Follow rate fluctuations, but don’t center deals solely around them.
The growth value of targets increases during market downturns, recessions and periods of economic uncertainty, so this might be a perfect time to consider M&A targets. I’ve found that private target companies tend to offer a higher profit than private non-targets, and public companies tend to be less profitable than public non-targets.
From my experience, rates today aren’t affecting the M&A side of the business. There’s high demand. There are many rooftops in the country, and more liquidity and businesses are putting it back into their industries. So, I believe rising rates won’t impact what we’ll see in the next 24 to 48 months on the M&A side, but keeping an eye on the movement of financial markets is critical.
Don’t have a fear of walking away.
If all the stars aren’t completely aligned on a deal, don’t be afraid to walk away. There are risky bets to make. For them to pay off, companies can’t assume that whatever they acquire can manifest into something strategic. There’s great courage in saying no, and sometimes that’s the best business decision.
With current supply being down and demand continuing to be on the rise, staying nimble and strategic with M&A transactions makes good business sense. By keeping one’s eye on the ball and with regard for solid strategic decisions based on keen opportunities expertly executed, the sky’s the limit.