Best of LinkedIn: M&A Insights CW 27/ 28

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant posts on LinkedIn about M&A insights from CW-Twenty-Seven and Twenty-Eight.

00:00:08: Frenness is a BDB market research company supporting M& A consultancies with a Market & Competition perspective for example in commercial due diligence's CDD.

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00:00:34: right.

00:00:34: so um Imagine just straight up turning down for consecutive acquisition offers.

00:00:39: Yeah

00:00:39: from a multi-billion dollar private equity firm no less

00:00:41: exactly.

00:00:42: I mean that takes incredible nerve but uh As we're gonna see today, that genuine willingness to walk away it's rapidly becoming the single most valuable currency in modern dealmaking.

00:00:52: It really

00:00:52: is and you know welcome to The Deep Dive everyone!

00:00:54: We're getting right into the nuts-and-bolts of what's happening out there.

00:00:56: Yeah we are...we're looking at the most relevant actionable M&A intelligence that surfaced across the professional network during calendar weeks twenty seven and twenty

00:01:05: eight.

00:01:05: We've been tracking how capital is shifting around, how buyers are totally rewriting their playbooks and the actual execution of these deals.

00:01:14: It's just fundamentally changing.

00:01:16: Yeah because if you're listening to this in strategy or private equity venture-capital consulting.

00:01:23: You already know that market feels really

00:01:26: weird

00:01:27: Strange.

00:01:28: So we've spent time distilling insights from the practitioners who are actually in the trenches right now to figure out why.

00:01:35: and I mean, let's start with this massive paradox of market momentum.

00:01:39: Oh!

00:01:39: The volume versus value thing?

00:01:41: Exactly deal volumes are noticeably down.

00:01:46: The deals that are actually making it across the finish line, they're commanding significantly higher price tags.

00:01:51: Right

00:01:52: which makes no intuitive sense?

00:01:53: Jonathan Boyer has published some really fascinating data on this.

00:01:56: he pointed out that M&A values actually rose thirty six percent even while transaction volumes fell thirty percent.

00:02:02: It's

00:02:02: crazy.

00:02:03: So how do you explain a thirty-six percent jump in value when...you know..it feels like nobody is buying?

00:02:08: Well, you explain it by looking at what's actually forcing those specific assets onto the market in

00:02:34: Exactly right now.

00:02:35: Well, think about the fund lifecycle rate limited partners The pension funds the endowments that actually give PE firms their capital.

00:02:44: they commit That money for a set

00:02:46: period rice not indefinite

00:02:48: exactly.

00:02:48: and boyers pointed out over A third of global PEE portfolio companies have been held For five years or longer.

00:02:55: Wow Five years.

00:02:57: Yeah, which is a lifetime in private equity.

00:02:58: So the LPs are you know demanding liquidity.

00:03:01: they want their cash back so that can reallocate it elsewhere Which

00:03:04: puts the general partners in a tough spot?

00:03:06: Absolutely.

00:03:06: That pressure forces them to put assets on the market whether those assets Are perfectly polished for sale or not.

00:03:12: but the buyers sitting On the other side of table I mean They know this right.

00:03:16: they know these funds are on a ticking clock.

00:03:18: Oh Intimately.

00:03:20: Yeah, and that completely changes their behavior.

00:03:23: Jeffrey Rosen had a great analysis on this exact point.

00:03:26: Oh yeah I saw the one.

00:03:28: yeah He noted that the mill market didn't just disappear It just became incredibly almost ruthlessly picky.

00:03:34: like they have the luxury of toys now

00:03:36: right PE firms on the buy side, they're no longer just chasing volume to deploy capital.

00:03:41: They are chasing absolute certainty.

00:03:44: They want stable cash flows, pristine financials and a management team that already knows how execute growth story.

00:03:52: Yeah in Himanshu Singh posted something that align perfectly with that.

00:03:56: he said The fundamental question buyers were asking has shifted entirely.

00:04:00: How

00:04:00: so?

00:04:01: Well it used look at pitch deck can ask you know the

00:04:06: growth at all costs mindset exactly.

00:04:09: but now they're asking how efficiently does this business convert investment into actual value?

00:04:15: it's like my analogy would be.

00:04:18: buyers are no longer looking for Gas-guzzling muscle car.

00:04:22: that just goes really fast.

00:04:23: Yeah,

00:04:23: they want a highly efficient hybrid.

00:04:25: They can sustain the long haul.

00:04:27: That's a really good way to put it.

00:04:28: The focus on cash conversion mechanics is just paramount right now.

00:04:31: It's not enough to show that if you pour ten million dollars into marketing revenue goes up by fifteen million.

00:04:39: buyers Want to see the underlying margin sustainability?

00:04:42: If they wanna know the operational engine doesn't leak capital Okay

00:04:45: But I have to push back here little bit sure.

00:04:47: if i'm advising a seller Right Now and the buyers are demanding absolute perfection.

00:04:53: Perfect cash conversion, perfect management, perfect certainty while also knowing my VCE or PE backers are desperate for an exit?

00:05:01: Yeah How does this seller maintain any leverage whatsoever?

00:05:06: I mean it really feels like the buyers hold all of cards right now.

00:05:08: Well that brings us to the airline example you mentioned at very start Right

00:05:11: The EasyJet Deal.

00:05:14: Nick Bradley broke down the underlying power dynamics.

00:05:19: Castle Lake, which is a massive US private equity firm came in with an offer to buy EasyJet at five hundred and sixty pence of share.

00:05:27: And EasyJett just said no?

00:05:28: They said No!

00:05:28: Castle Lake came back.

00:05:30: EasyJets said NO again.

00:05:31: That takes guts

00:05:33: Four times.

00:05:33: they rejected the bid four times.

00:05:36: finally castle lake offered six hundred ninety pence Which EasyJette accepted and that Is a seventy three percent premium from where The shares sat when the approach began.

00:05:45: okay but wait EasyJet is a multi-billion dollar public airline.

00:05:50: True They have global brand recognition, massive daily cash flow.

00:05:54: If you're listening to this and your an advisor to mid market tech founder whose venture backers are just breathing down their neck You can't act like easy jet.

00:06:01: Fair point.

00:06:02: So how does it normal desperate seller create that kind of leverage?

00:06:05: Your right A heavily leveraged midmarket firm definitely cant bluff a major PE fund.

00:06:11: But the lesson from Bradley isn't about pretending you don't need a deal.

00:06:15: It's about structuring your operations so you actually don't need the liquidity event today.

00:06:21: Leverage isn't derived from your size, it is derived from burn rate and balance sheet.

00:06:25: If your operational cash flow allows to comfortably survive outside capital,

00:06:32: then you have walkaway power.

00:06:33: Exactly!

00:06:33: You have the power to walk away.

00:06:35: if your burning cash and need a buyout just make payroll next quarter?

00:06:39: You lose the premium.

00:06:40: The highest valuations are going into companies that treat M&A as an option not a rescue mission Right.

00:06:46: So we had market where capitals precious buyers or acting like surgeons And sellers desperately trying build walkway power

00:06:54: Bring it much.

00:06:55: If capitol is this guarded?

00:06:56: Where's actually flowing?

00:06:58: Because if we look at sector consolidation, We're seeing two wildly different extremes right now.

00:07:04: On one hand you have these massive headline grabbing capability plays like Alistair Machet highlighted SpaceX agreeing to buy an AI coding startup called Cursor for sixty billion dollars in all stock deal

00:07:17: which is astronomical.

00:07:19: it's roughly twenty three times annualized B-to-B revenue.

00:07:23: Yeah, which sounds completely irrational until you look at the currency they're actually using.

00:07:30: You mean the stock?

00:07:30: Exactly when your company is valued at roughly two trillion dollars Your freshly printed stock is an incredibly powerful weapon.

00:07:38: yeah

00:07:39: That's true.

00:07:40: SpaceX isn't buying cursor for its current revenue.

00:07:44: They are buying it to permanently close a capability gap Using equity that frankly cost them very little in real cash terms.

00:07:53: It's a pure additive growth

00:07:54: play.".

00:07:55: Right,

00:07:55: but contrast that additive mindset with what Gabriel Morelli pointed out on the biotech space... Oh!

00:07:59: The Biogen Deal?

00:08:00: Yeah.

00:08:01: Biogen bought a Pellis for five point six billion and almost immediately BioGen halted or discontinued funding for most of Appellis' ongoing research program.

00:08:10: They just gutted it.

00:08:11: They trimmed rolls.

00:08:12: they focused almost entirely On the two approved commercial assets That made the deal attractive In the first place.

00:08:17: I struggle this bit like Is post-deal strategy now inherently just about subtraction and ruthlessness?

00:08:23: Well, ruthlessness makes it sound malicious but subtraction is often the exact mechanical requirement of a strategic thesis.

00:08:29: What do you mean?

00:08:31: Companies don't buy other companies to preserve them as museums they a patent portfolio or commercial infrastructure?

00:08:40: As Morelle pointed out, once the deal closes.

00:08:42: The new parent organization has to ask a hard question

00:08:45: which is

00:08:46: does this specific R&D project deserve capital competing against our existing internal projects?

00:08:51: and often the answer Is just no.

00:08:54: strategy is ultimately about deciding what not to do.

00:08:57: that makes sense but If biotech and AI are the high stakes, multi-billion dollar games of addition and subtraction.

00:09:05: Let's look at the absolute opposite end of the spectrum The

00:09:08: unglamorous stuff?

00:09:09: The totally unglamorous rollups.

00:09:11: Christoph Tautter surfaced a trend that I found fascinating.

00:09:14: Fire protection is becoming new HVAC for private equity.

00:09:18: Yeah!

00:09:18: I saw

00:09:19: it Brilliant.

00:09:19: He noted one platform.

00:09:21: Pi Barker closed fifty seven acquisitions in single year.

00:09:25: That more than one deal per week.

00:09:27: Why are private equity firms swarming fire sprinklers?

00:09:30: Because of the underlying financial mechanics.

00:09:32: Fire Protection Revenue is driven by NFPA-V, which has been standard for inspection testing and maintenance of water based fire protection systems.

00:09:42: It mandates quarterly an annual testing

00:09:44: So it's legally mandated.

00:09:46: recurring revenue Exactly!

00:09:47: It entirely non discretionary.

00:09:49: If you own a commercial building You have to comply with the FIRE code or city literally shuts down.

00:09:55: Wow.

00:09:56: Think about how that compares to like a B-to-B sauce product where a client can shurn if budgets get tight or an HVAC service contract, but the building manager might just defer for six months?

00:10:10: Right you can't just defer fire code compliance!

00:10:12: No You Can't.

00:10:12: it creates incredibly sticky recession proof cash flows in a highly fragmented market of small regional operators.

00:10:20: It's the perfect roll up target

00:10:21: That makes total sense.

00:10:23: It's the pursuit of unshakable fundamentals.

00:10:25: And interestingly, you can apply that exact same philosophy to tech which is what Tuluhan Ademi highlighted with Bending Spoons.

00:10:31: Oh yeah!

00:10:31: Bending spoons as a great example.

00:10:33: They recently IPO'd at a twenty-five billion dollar valuation But their entire M&A playbook Is the opposite Of this SpaceX approach we just talked about.

00:10:42: Right

00:10:43: they're not buying twenty three times revenue.

00:10:45: AI startups

00:10:46: No...they are buying established mature platforms That have totally lost there momentum.

00:10:51: Things like Evernote we transfer meetup.

00:10:54: Bending Spoons is just a masterclass in operational value creation, they essentially buy the fixer-uppers of

00:11:02: Digital real estate flipping almost

00:11:03: kind of but what they actually do post acquisition is the real key.

00:11:07: They don't just hold them.

00:11:08: They apply this rigorous centralized execution model, they strip out redundant management layers migrate The back office tech to their proprietary stack and brutally optimize the pricing tiers.

00:11:20: So it's all operational execution.

00:11:22: exactly whether you are rolling up fire sprinkler companies in Ohio or legacy note-taking apps globally?

00:11:31: fundamental operational improvement, not just paying a premium for top-line height.

00:11:36: Speaking of execution and tech we can't really talk about fixing operational models or analyzing data rooms without looking at the tool everyone claims is a magic wand right now.

00:11:46: AI in M&A – The Elephant In The Data Room

00:11:49: Exactly!

00:11:56: Matthew Tigwell posted a major warning about AI hallucinations during forty-five day due diligence sprints.

00:12:02: Yeah, this is big problem.

00:12:04: Analysts are trying to save time by just dumping entire five hundred page data rooms into standard large language models

00:12:11: Which mechanically breaks the tool

00:12:13: Right.

00:12:14: But why does it break?

00:12:15: Like, why can't the model just read The Five Hundred Pages?

00:12:18: It comes down to how context windows work in these models.

00:12:21: When you feed a generic AI five hundred pages of dense financial and legal documents its attention mechanism gets diluted

00:12:29: So it loses track of things.

00:12:30: Yeah!

00:12:30: It loses contextual thread connecting say a clause on page ten with revenue schedule on page four hundred ninety.

00:12:36: And when that thread is still prompted to provide an answer...it hallucinates.

00:12:42: it will confidently invent a plausible sounding reason why Q-three revenue slowed down, completely blending facts from different documents.

00:12:51: And that is catastrophic.

00:12:52: in due diligence.

00:12:53: I can imagine.

00:12:54: Tigwell emphasizes you need purpose built tools to chunk data and explicitly cite every single finding back into the original source.

00:13:02: document

00:13:04: perfectly explains the data Gashan Yusuf and Gwen Pope shared.

00:13:08: They noted that while forty-five percent of M&A practitioners are now using AI in some capacity, The actual return on investment is lagging far, far behind the hype.

00:13:18: Yeah use of hit and a really critical point about bottlenecks there.

00:13:21: AI's fantastic at compressing this search for information.

00:13:25: like it can find that change control clause in three seconds.

00:13:28: right but I cannot compress human judgment.

00:13:30: the bottleneck simply shifted from finding data to analyzing.

00:13:34: strategic implication of that data makes sense.

00:13:36: and pope went even deeper pointing out systemic flaw.

00:13:40: Firms are applying AI to fundamentally broken operating models.

00:13:44: It's like buying a state-of the art supercomputer, to organize a warehouse full of unlabeled scattered filing cabinets.

00:13:50: Yes The computer can process information instantly but it doesn't know where to look or what means if the underlying filing system your internal M&A process is just disaster.

00:14:02: Pointing AI at a fuzzy deal rationale doesn't clarify the rationale, it just accelerates the production of fuzzy reports.

00:14:08: That is perfect analogy.

00:14:10: you are essentially digitizing dysfunction but when human process clear tool can be revolutionary.

00:14:17: Did you see the post from Dave Glazer about NMI's acquisition?

00:14:21: I

00:14:21: did and completely reframes how executives should use this tech.

00:14:25: Glazer didn't use AI to replace his investment bankers or lawyers.

00:14:30: He used it as what he called a private thinking layer.

00:14:33: A

00:14:33: Private Thinking Layer?

00:14:34: I love that term!

00:14:35: How did he actually implement this in the live deal environment?

00:14:39: So, he used it manage the cognitive load of context switching.

00:14:43: If you are CEO and lead partner navigating a transaction your day is totally fractured.

00:14:48: Oh absolutely

00:14:49: You go from a highly technical legal call to a strategic board meeting, to an all-hands employee town hall.

00:14:56: Glazer used the AI to pressure test his narratives for each of those different

00:15:01: audiences.".

00:15:02: Okay so feeding it prompts?

00:15:03: Yeah he would feed at his premise and ask what is the cleanest way to explain this to the Board?

00:15:08: or What specific vulnerabilities with a skeptical buyer attack in this argument?

00:15:13: notice how that completely bypasses The hallucination risk Tigwell warned about exactly.

00:15:19: Glazer wasn't asking the AI to find hidden facts in a five hundred page contract.

00:15:24: He was asking it to evaluate logic, he was using it to identify his own blind spots.

00:15:29: It functioned as an intellectual sparring partner?

00:15:31: It wasn't making the decisions... ...it's expanding its thinking surface area so that when we walked into those high stakes rooms.. ..he is completely prepared for friction

00:15:39: Which brings us to most critical phase of any deal and honestly our final theme today Execution readiness

00:15:45: Because always comes down execution

00:15:47: It does.

00:15:48: All of that intellectual preparation, whether using a supercomputer or an army of analysts it just hits a brick wall on day one if the human elements aren't prepared.

00:15:58: Human friction remains the ultimate deal killer.

00:16:01: Lindsay M. Wendler had a great perspective on this.

00:16:04: she said The absolute best M&A deals are boring.

00:16:07: Boring is good.

00:16:09: Yeah,

00:16:09: she doesn't mean they lack strategic complexity.

00:16:12: She means they lack surprises.

00:16:14: The data room is meticulously organized the financials tie out instantly and management actually has the answers to operational questions.

00:16:24: And

00:16:27: when you don't have that preparation, things blow up spectacularly.

00:16:30: I do!

00:16:30: Damian H Weinstein posted about the specific legal nightmares that derail transactions right at The Finish Line... ...the most agonizing one he called out is the Ghost Owner.

00:16:39: THE GHOST

00:16:39: OWNER?

00:16:40: How does a ghost owner actually kill a deal mechanically like?

00:16:43: how does THAT happen?

00:16:44: Okay imagine a former employee or an early co-founder who was given say three percent equity five or six years ago.

00:16:51: They eventually drifted away from the company and management never officially bought out their shares, or cleaned up the cap table.

00:16:58: Oh no!

00:16:58: Suddenly you have a private equity buyer at the table ready to close.

00:17:02: that buyer requires clear unencumbered title to the company but this phantom equity holder still has voting rights or they require a signature.

00:17:13: And there know where to be found?

00:17:14: Right, the company reaches out and The Ghost owner either doesn't return calls Or even worse realizes They have maximum leverage and holds up for some ridiculous payout!

00:17:26: The legal friction drags on...the buyer loses patience..and deal dies

00:17:30: Over a three percent stake that nobody thought about in five years.

00:17:34: That is brutal

00:17:35: It really is.

00:17:36: Patrick O'Connell shared very similar story of how silos kill momentum.

00:17:40: He watched a four point five million dollar acquisition fall apart on day eighty seven of diligence.

00:17:45: Day

00:17:45: eighty-seven?

00:17:46: That's agonizing!

00:17:47: Right, the business was good The price is fair and the seller was motivated.

00:17:51: But it died simply because the sellers CPA their attorney And they're lender were operating in complete silos.

00:17:58: They weren't talking to each other at all.

00:18:00: Information requests stalled documents conflicted and the Seller just watched twelve weeks of momentum evaporate before finally walking away out of sheer frustration.

00:18:10: Wow!

00:18:11: If you're advising on a deal, your job isn't just building the financial model... Your job is forcing those silos to communicate

00:18:18: and that coordination doesn't get any easier after the ink dries either.

00:18:23: Greg had made a phenomenal point about post-close execution.

00:18:27: There's this common assumption that acquisitions fail because the operational integration was poorly planned,

00:18:33: right?

00:18:33: The classic integration failure?

00:18:35: Yeah

00:18:35: But head argues they actually failed Because the buyer simply runs out of cash.

00:18:39: during the transition

00:18:40: He noted that everyone focuses on the P&L.

00:18:42: Right They ask is it target business profitable?

00:18:46: Head says the question needs to be do I have enough actual liquidity To survive the first ninety days?

00:18:51: The mechanics of the working capital gap are just brutal.

00:18:55: When you take over a business, profit is an accounting metric—cash is what keeps lights on.

00:19:04: and the customers.

00:19:05: Customers often test new ownership by delaying their invoice payments, plus your transition team is burning through budget trying to integrate IT systems.

00:19:14: that creates a massive cash trough.

00:19:16: right

00:19:16: if you under capitalize The deal thinking current cash flow would cover the transition You go bankrupt while technically being profitable.

00:19:24: So how do you fix this systemic failures post close?

00:19:29: Because Simone Vascotto pointed out a deep structural flaw in the industry that sets these integrations up to fail from start.

00:19:37: The inverted incentives.

00:19:38: Exactly,

00:19:39: the deal team...the folks modeling the transaction and negotiating the price they were rewarded for getting the deal signed.

00:19:45: They get their bonus ,they get promoted And then move on to the next target.

00:19:49: But the integration team inherits the actual messy reality of those financial models Which

00:19:54: is where the whole concept of cross-selling synergy usually meets reality right?

00:19:59: Yeah!

00:19:59: The Deal Team's spreadsheet might assume a twenty percent bump in revenue because they just assumed that Target sales teams will immediately start across selling the parent company's software.

00:20:08: Right,

00:20:08: but nobody bothered to check if two sales teams use the same CRM or their commission structures are even aligned.

00:20:14: The system optimizes for deal velocity passing execution risk down a line.

00:20:20: So problems just mathematically guaranteed.

00:20:22: How do best leaders survive chaos of integration?

00:20:27: Thomas H. Kessler offered a framework that I think every executive should probably adopt.

00:20:32: Oh, the learning velocity concept.

00:20:34: Yeah

00:20:34: He said post merger success is not about day one readiness and it's not about rigid governance.

00:20:39: The real differentiator Is what he calls Learning Velocity

00:20:44: Because when you combine two distinct corporate cultures And IT infrastructures You will experience friction.

00:20:50: It's inevitable.

00:20:51: Talent will threaten to leave, systems will clash Sure.

00:20:54: A slow learning integration team views those problems as failures and they spend their energy trying to protect the original deal thesis at all

00:21:01: costs Just sticking-to-the-plan no matter what

00:21:03: Exactly.

00:21:04: But a high performing team with high learning velocity expects the friction.

00:21:08: Kessler argues that CEOs need to stop asking their integration leads for green light status reports.

00:21:14: What should they ask instead?

00:21:15: They need to ask... What new reality have we learned about this target and what must we change immediately to adapt?

00:21:24: They improve the integration plan while the integration is actually moving.

00:21:27: Wow, We've covered a massive amount of ground today.

00:21:30: Yeah...we're gone from picky buyers demanding perfect cash conversion To the strategy of subtraction in biotech The quiet dominance of fire protection roll-ups Using AI as a sparring partner And surviving the cash trough of integration.

00:21:44: That's a lot It is.

00:21:45: So if you are sitting at a desk right now reviewing a pitch deck or modeling a buyout, where's this all heading?

00:21:52: Well, if we synthesize everything We've seen from the professional network over these last two weeks it leads to a very clear slightly provocative realization about The future of deal-making.

00:22:01: okay.

00:22:02: Let's hear It!

00:22:02: We are watching AI rapidly commoditized the analytical and processing layers of M&A Document review baseline financial modeling drafting initial term sheets.

00:22:12: that is all becoming faster And significantly cheaper.

00:22:15: right But as Federico Bardella pointed out in a recent survey, the absolute hardest part of closing a deal is still the financing precisely because it remains intensely relationship driven.

00:22:26: Yeah I mean you can have the most brilliant AI generated pitch deck in the world but a large language model cannot take a syndicate of lenders out to dinner and convince them to trust you with one hundred million dollars.

00:22:38: Precisely so here as the technical execution and data processing of M&A become totally commoditized by technology.

00:22:49: Will human relationships, deep capital networks ,and high stakes executive judgment become the only things that truly command a premium in tomorrow's landscape?

00:22:59: That is a phenomenal question to leave on!

00:23:01: The machines can organize the Data Room but we have to keep their relationship and judgement.

00:23:05: Exactly

00:23:06: If you enjoyed this episode new episodes drop every two weeks.

00:23:09: Also, check out our other editions on private equity, venture capital and strategy in consulting.

00:23:14: Thank you for joining us with this deep dive into the realities of a modern market!

00:23:18: Don't forget to subscribe…and we'll catch ya next time.