Best of LinkedIn: M&A Insights CW 23/ 24

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant posts on LinkedIn about M&A Insights from CW-Twenty Three in Twenty Four.

00:00:07: Frenness is a BDB market research company supporting M& A Consultancies with The Market & Competition perspective for example in commercial due diligence's CDD.

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00:00:32: Great, so with that out of way let's get into it for this deep dive.

00:00:36: we are aiming our lens squarely at the top M&A trends that are you know dominating professional conversations across the industry right now.

00:00:43: yeah specifically from calendar weeks twenty three and twenty four.

00:00:47: And mission here is pretty simple.

00:00:48: honestly We're totally bypassing the fluff the superficial headlines looking directly what the smartest operators or deal makers talking about

00:00:55: Exactly.

00:00:56: The real operational mechanics, the how and why behind strategy deal execution

00:01:10: And to understand where the market is going, we kind of have to start by looking at how the traditional rules are just being flipped on their head.

00:01:16: Oh completely flipped?

00:01:17: Yeah.

00:01:17: so let's jump into our first theme here which is Market Momentum and The Execution Reality Check.

00:01:24: because for over a decade the absolute gold standard playbook was simple

00:01:28: We're at the parallel process.

00:01:29: Exactly you run a parallel process.

00:01:31: You basically rely on a strategic acquirer To outbid private equity.

00:01:37: I mean, you bank on that strategic premium because theoretically the corporate buyer can realize cost synergies that a financial sponsor just can't.

00:01:45: But if look at data... That playbook is dead!

00:01:49: Christophe Todder brought up this macro insight recently and it's a fascinating inversion.

00:01:54: Yeah

00:01:54: right now in U.S.

00:01:55: mid-market private equity is paying twelve point eight times EV to EBITDA and strategics.

00:02:02: They're trailing way behind at nine point nine times, so we are looking a massive three turn premium favoring financial sponsors.

00:02:10: okay wait let me push back on this right out of the gate.

00:02:13: yeah because lets unpack this math.

00:02:15: sure

00:02:16: if private equity is paying a three-turn premium over strategic does the strategic premium even exist anymore?

00:02:23: Like PE isn't running a charity here.

00:02:25: They have strict hurdle rates,

00:02:26: right?

00:02:26: They have to generate return.

00:02:27: exactly.

00:02:28: So where is that math actually coming from?

00:02:30: as it just you know?

00:02:31: record dry powder and aging portfolios That desperately need exits or our sellers Just taking on way more risk through earnouts and rollover equity To hit that headline number?

00:02:42: well

00:02:42: the pressure to deploy capital Is definitely a massive driver.

00:02:46: but you hit the nail on the head, The actual math is hiding in the deal structure.

00:02:50: Yeah I've figured.

00:02:51: I mean sellers.

00:02:51: look at that twelve point eight X headline number and they pop the champagne but their absorbing substantially more risk to actually realize it.

00:03:00: You know PE deals In this environment carry very aggressive earn out.

00:03:04: Oh yeah

00:03:04: Earnouts usually pay pennies On-the-dollar historically

00:03:07: Exactly!

00:03:08: Earn outs And massive rollover equity requirements.

00:03:11: So when you factor into historical reality of how earnats perform That realized cash at close gap between PE and strategics narrows drastically.

00:03:20: Wow, so chasing the absolute highest multiple whether it's from PE or a strategic is honestly just a trap?

00:03:28: And this connects perfectly to what Anali has pointed out which is a brutal reality check.

00:03:33: Oh her posts on failure rates.

00:03:35: Yeah

00:03:35: ninety percent of M&A deals fail anyway they feel because overpriced valuations cultural clashes missed synergies all

00:03:42: Right.

00:03:43: And yet the trap is set on day one of

00:04:12: at this totally unsupportable valuation.

00:04:14: The buyer's bulk and the process

00:04:17: dies.".

00:04:17: Which means we really need to look what actually drives valuation when real money changes hands?

00:04:24: It is not just about raw size of your EBITDA, both Lindsay M. Wendler & Roberto Ganzerli expanded on it brilliantly!

00:04:33: They emphasized that premium valuations are fundamentally driven by two things – transferability.

00:04:40: Let's break those down because I think people hear transferability and assume it just means having a decent middle management team.

00:04:45: Oh, what goes way deeper than that?

00:04:47: Transferability is about structural risk mitigation for the buyer like how much risk Is a buyer taking on if the owner leaves right If accompanies key client relationships or all their operational know-how are locked inside The founders head that business is incredibly fragile.

00:05:02: Yeah

00:05:02: You pull the founder out the whole thing Just collapses.

00:05:04: yeah

00:05:04: exactly.

00:05:05: And regarding revenue quality It's about predictability and client diversification.

00:05:10: What's fascinating here is that a business with average financials, but perfectly documented processes and low owner dependency will absolutely command a premium over.

00:05:24: Dr.

00:05:28: Mike DeFries points out, inorganic growth isn't just about buying certainty.

00:05:33: it is an organizational capability that you have to build internally.

00:05:37: yes You can't just hire one M&A person and expect magic happen.

00:05:40: right if your organization lacks the internal plumbing.

00:05:43: The brilliant sourcing doesn't matter.

00:05:46: So let's pivot and look at our second theme how the acquirers who actually possess That capability are executing their playbooks Right now.

00:05:52: strategic

00:05:53: intent

00:05:53: exactly buying occasions intense scale.

00:05:57: Acos Petri did this brilliant breakdown of Coca-Cola's current M&A strategy and it totally reframes how you should look at target assets.

00:06:04: Okay,

00:06:04: lay that on me.

00:06:05: Coca-cola

00:06:05: isn't spending billions to buy drinks.

00:06:07: they're buying drinking occasions.

00:06:09: Oh

00:06:09: wow!

00:06:09: Yeah They buy Costa for the morning coffee routine...they buy body armor from The Gym occasion..They acquire Fairlife for premium dairy nutrition.

00:06:19: Here's where it gets really interesting, actually.

00:06:21: It's like a software company bundling apps to own your entire screen time.

00:06:25: That is great analogy Right

00:06:27: But Coca-Cola is trying to own every specific thirsty moment in you're twenty four hour day.

00:06:33: They aren't just selling liquid they are monetizing the minute Exactly.

00:06:37: And if we cross over into tech space Charlie Liu highlighted similarly brilliant strategy by Addian

00:06:44: the fintech giant.

00:06:45: Right, Adion recently spent a billion dollars acquiring Orb and Talon one.

00:06:50: now on the surface if you just read the headlines it looks like a payments company buying what billing in loyalty tools

00:06:56: yeah seems pretty basic but really Charlie points out they are buying the data that sits closest to actual commercial consumption and intent.

00:07:03: ah I see think

00:07:04: about it.

00:07:04: A loyalty platform sees what promotions trigger to buy?

00:07:11: Addin wants to own the why behind the transaction, not just money movement itself.

00:07:19: Speaking of discipline let's talk about Medtronic.

00:07:22: Gianmarco Pacifico and Alex Prudenkov outlined Medtronics highly targeted twenty-twenty six playbook And it is aggressive but so controlled.

00:07:31: Right, they are completely avoiding those massive fourteen billion dollar mega mergers that their competitors are doing.

00:07:38: Exactly!

00:07:38: They're capping deals at one point five billion Doing these strategic tuck-ins like CathWorks and Sanse Vascular.

00:07:45: And what

00:07:45: really stands out there is Medtronix.

00:07:48: Try Before You Buy model.

00:07:50: I mean...they'll invest in a company watch the hospital adoption of technology for four years and only acquire it once commercial viability

00:07:57: completely proven.

00:07:58: They let the market do the diligence for them,

00:08:00: it's brilliant.

00:08:01: but executing these highly targeted data-driven acquisitions requires a totally new operational infrastructure which leads us directly into our third theme

00:08:10: AI led dealmaking and institutional learning.

00:08:13: exactly because how AI is rewiring The M&A process itself Is just wild right now.

00:08:19: Rui Silva in Benjamin Steer brought this up.

00:08:21: AI & M& A is no longer Just a productivity hack

00:08:24: Right, it's not just a chatbot summarizing a data room anymore.

00:08:27: Now we are entering the era of egentic AI networks of AI agents that can actively plan execute and adapt across the entire life cycle of a deal.

00:08:39: And

00:08:39: Daniel Friedman pointed out why this changes everything, traditionally M&A is treated as a bunch of isolated transactions right?

00:08:45: You close a deal in all that institutional knowledge just vanishes

00:08:49: Exactly!

00:08:49: The bankers leave...the VP takes a new job..the lessons are lost.

00:08:54: but AI is turning m&a into a compounding institutional learning system.

00:09:00: it remembers every single data point from past deals to inform the next one.

00:09:04: Okay, so what does this all mean in practice?

00:09:06: Because if AI is analyzing all of these data aren't we still relying on humans that actually move the data between systems like a copy-paste problem?

00:09:15: That

00:09:16: has totally been the bottleneck but Hannah Jarrett from Dealeroom shared a massive update on it.

00:09:20: The industry's actively solving that copy paste handoff problems.

00:09:24: Oh really?

00:09:24: Yeah New tools are connecting AI directly into the deal dataroom.

00:09:29: So the AI reads documents writes analysis and creates records in real time.

00:09:34: It completely bypasses the manual

00:09:36: overhead.".

00:09:36: Wow, so this software just lives inside of the data room natively?

00:09:40: Exactly!

00:09:41: And Sacha Vandermeerish noted that tools like Synergy AI are now merging both buy-side AND sell side mandates into single workspaces...

00:09:48: Unifying whole

00:09:49: stack?!

00:09:50: Right you don't need disjointed tech anymore….

00:09:52: That's incredible.

00:09:54: but while AI can perfectly map out a deal on the Data Room The actual physical integration remains the graveyard where value goes to die

00:10:01: The messy human element.

00:10:03: Exactly, which brings us to our fourth theme Carvouts integration and the storm ahead.

00:10:09: Nadine Leitner and Irmer F. Goeven delivered a very serious reality check on carve outs.

00:10:15: Well

00:10:15: car routes are so deceptive.

00:10:17: On paper it's just an asset transfer

00:10:19: right?

00:10:19: Just move this spreadsheet over

00:10:20: but in reality It is the complete rewiring of a business.

00:10:24: you were untangling shared IT Shared finance HR just to build a standalone entity.

00:10:29: Yeah, and Kai Heslman had a great quote about this.

00:10:31: He calls IT carveouts heart transplants for companies.

00:10:35: that is so accurate

00:10:36: especially those complex SAP separations.

00:10:38: you have to keep these massive enterprise systems running twenty four seven during the surgery.

00:10:44: You can't just pause the business.

00:10:46: And while the it team is doing the heart transplant The leadership is usually messing up the human integration.

00:10:53: Honey Justin Crerop warns against using the classic burning platform tactic.

00:10:57: Oh fear-based urgency.

00:10:59: Exactly,

00:11:00: manufacturing a crisis to force integration.

00:11:03: she points out that it creates compliance sure but not the actual commitment needed from the team.

00:11:08: yeah you get people nodding in meetings but silently looking for other jobs.

00:11:11: right and as ernevin sen points out leadership is usually totally blinded.

00:11:15: this because post merger employee surveys usually fail.

00:11:18: why do they fail?

00:11:19: because they asked the wrong questions at the wrong time.

00:11:22: They end up delivering these sanitized, feel-good data dashboards to executives while all of their key talent is quietly

00:11:29: leaving.".

00:11:29: Wow!

00:11:30: And if we connect this with a bigger picture... The stakes right now are huge.

00:11:34: Existential

00:11:35: really?

00:11:35: Yeah… Because Chris Krish warns that a distressed M&A wave is absolutely locked in for twenty-twenty seven.

00:11:41: This

00:11:41: is the storm ahead.

00:11:42: Talked me about Twenty-Twenty Seven.

00:11:43: What's locking it into?

00:11:45: It's credit market.

00:11:46: Credit is tightening and all those overleveraged deals from twenty-twenty one, you know the ones struck at eleven XE but with covenant light terms They are hitting a maturity wall.

00:11:57: Oh man so the lifelines are running out exactly.

00:12:00: Lenders want real cash flow now not theoretical synergies.

00:12:04: So the businesses that didn't integrate properly?

00:12:06: The ones it didn't build real value they're gonna be forced into the hands of disciplined buyers very soon The ones with actual dry powder and integration muscle.

00:12:16: It's going to be a bloodbath for the undisciplined, but massive opportunity for prepared.

00:12:21: Incredible!

00:12:22: Well that covers our key themes today.

00:12:24: if you enjoyed this episode new episodes drop every two weeks.

00:12:27: also check out other additions on private equity venture capital in strategy consulting.

00:12:32: thank you so much joining us.

00:12:34: make sure subscribe.

00:12:36: Yeah, thanks for tuning in.

00:12:37: And I want to leave you with a final provocative thought that builds on what we just discussed.

00:12:41: as Ask yourself, is your organization currently holding onto an aging non-core asset out of purely emotional loyalty?

00:12:53: Because as Jan Steinbetcher noted portfolio cleanup isn't a retreat.

00:12:56: If the market is about to flood with twenty twenty one's over leveraged mistakes The companies that will win are the ones divesting heavy baggage today.

00:13:03: so they have capital and agility strike tomorrow.

00:13:05: Are you ready for fire sale?