Best of LinkedIn: M&A Insights CW 35/ 36

00:00:00: provided by Thomas Alguyer and Frennis, based on the most relevant LinkedIn posts about M&A Insights in calendar weeks thirty-five and thirty six.

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00:00:43: So M&A Is Often Sold To Us As This Like Purely Financial Transaction.

00:00:47: Right Just Math Exactly.

00:00:49: You Model The Cash Flows You Agree On A Multiple You Signed The Papers And Boom Values Created.

00:00:53: But I mean Anyone who has actually been in the trenches knows a deal is fundamentally an acquisition of risk.

00:00:59: Yeah, you're buying the risk

00:01:00: totally.

00:01:01: So today we're looking at the raw anatomy of deal flow.

00:01:04: right now We're cutting through the noise specifically for strategy M&A and investments.

00:01:12: professionals

00:01:12: unpacking what's actually happening out there.

00:01:14: yeah extracting actionable intelligence from recent sources to figure out.

00:01:18: You know where that risk is hiding?

00:01:20: And how deals are actually being made or broken in the current market.

00:01:23: Because whether you are on the buy side, You know structuring a roll-up or your on the sellside trying to prepare founders for an exit The goal for this deep dive is to give you the unvarnished reality.

00:01:34: No fluff

00:01:35: right no fluff.

00:01:36: We're bypassing the theoretical frameworks.

00:01:39: we want to look directly at the mechanics of diligence the nuances of valuation and the actual operational reality Of integration.

00:01:46: so let's start right at the point of like maximum friction which Is getting the deal through due diligence?

00:01:52: Yeah

00:01:52: the gauntlet

00:01:53: Seriously, and one of the first major hurdles is the management presentation.

00:01:59: It's actually surprising how often this initial face-to-face just goes completely sideways.

00:02:03: Lindsay M. Wendler had a really great point about this.

00:02:05: Yeah She noted that sellers tend to massively over prepare for these meetings.

00:02:10: Exactly they script out like at three hour slide presentation.

00:02:14: They're trying to make it flawless but buyers aren't looking for theatrical performance there Looking For A Working Session.

00:02:20: And the psychology there is just critical to understand because when a founder is reading from a script, they're projecting defensiveness.

00:02:28: Yeah A private equity buyer or you know any strategic acquire Is sitting across the table trying To determine one primary thing.

00:02:36: can I trust this team?

00:02:37: To navigate a crisis.

00:02:38: right Because things will break

00:02:40: Exactly.

00:02:40: If you only shine when your reciting prepared marketing copy, the buyer immediately wonders well what happens when this supply chain breaks down or a major client churns?

00:02:51: The best moments actually happen completely off-script.

00:02:54: It's like first date.

00:02:55: if show up and just reading from script it is massive red flag.

00:02:59: Totally

00:03:00: Buyers want to know there are actual substance beneath polish Like auditioning for jazz band.

00:03:06: by strictly reading cheap music The buyer wants to see you improvise.

00:03:11: Right, they want to ask that unexpected question about say your margin compression in Q three and just watch how the CFO And this CEO interact?

00:03:20: To answer it

00:03:21: yeah That dynamic because

00:03:22: that off-script moment proves You actually understand the operational levers of Your business

00:03:28: and that leads directly into How buyers assess transition risk which Rajiv kaitan had a great post About capturing This Dynamic Perfectly.

00:03:37: Oh, this was a wild example.

00:03:38: It really was he described to scenario where a PE buyer sat down with the founder and instead of digging into The financial metrics the very first question they asked Was how long will you stay which

00:03:48: is just a terrifying?

00:03:49: Question if your founder hoping that hand over the keys And head straight to the beach.

00:03:53: oh

00:03:53: absolutely yeah.

00:03:54: But it changes the entire leverage dynamic because pe Is essentially underwriting the sustainability Of those cash flows.

00:04:00: right If the founders still holds all the major customer relationships and hasn't like built a robust second layer of leadership, the business's value is currently locked entirely inside that founder's head.

00:04:13: Yeah and if they want really short transition period then buyers are suddenly forced to price in the cost of conducting an executive search hiring new CEO And you know...the inevitable customer churn always follows.

00:04:25: That

00:04:26: operational risk just directly lowers their prices.

00:04:28: willing pay The shorter sellers runway the faster leverage shifts to the buyer on price and terms.

00:04:35: And that structural weakness is often what unravels deals once they actually get into the data room?

00:04:41: Hamanshu Singh brought up a point that challenges a lot of mid-market assumptions here.

00:04:44: Right,

00:04:45: about why good businesses fail diligence.

00:04:48: Exactly!

00:04:49: Sellers often believe if they just have profitable growing business They'll breeze through due diligence.

00:04:56: Good businesses fail diligence all the time and it's rarely because of one massive headline grabbing fraud.

00:05:03: It is usually like twenty small things that just aren't properly documented?

00:05:07: Yes,

00:05:08: mid-market businesses assume diligence as just about proving profitability But buyers are testing if operations and earnings can actually be verified.

00:05:16: If they could be transferred, yeah

00:05:17: Right like if a buyer asks for a cohort analysis of customer retention over the last two years And it takes management three weeks to manually pull that data from Three disjointed systems

00:05:29: The buyer just stops trusting the underlying data architecture

00:05:32: completely.

00:05:33: the mechanism Of trust in M&A relies on an auditable trail.

00:05:37: If management can't reconcile numbers quickly, buyers stop asking is this a good business?

00:05:43: and they start asking what else don't we know?

00:05:45: And that uncertainty instantly triggers renegotiation.

00:05:48: So

00:05:49: immediately!

00:05:49: But sometimes that renegotiation happens internally entirely by accident because of how the deal was structured.

00:05:56: Jay Grayson highlighted his structural pitfall.

00:05:58: he calls The LOI Trap.

00:06:00: This is such a painful one for founders.

00:06:02: It really is!

00:06:03: Founders will fight tooth and ale over the headline price in a letter of intent, but they'll completely overlook ONE single sentence that dictates whether the transaction is an asset sale or stock sale...

00:06:13: Because THAT ONE line can move more money than the headline itself.

00:06:17: Exactly….

00:06:18: it's a devastating blind spot if you don't understand the tax mechanics….

00:06:22: In A Stock Sale The buyer acquires THE ACTUAL LEGAL ENTITY taking on all its historical liabilities.

00:06:29: Which buyers generally hate?

00:06:31: They hate it!

00:06:32: They prefer an asset sale where they essentially go shopping, buy the customer lists and equipment, the IP... And leave empty corporate shell with their liabilities behind.

00:06:42: But financial fallout for a seller in that scenario can be massive Huge.

00:06:48: If The Target Company is structured as C Corp An Asset Sale triggers double taxation.

00:06:53: The corporation pays tax on the gain from the assets and then when the founders want to actually touch that money They have to distribute it as dividends triggering individual tax.

00:07:02: So a founder might pop champagne over a great headline price only to realize weeks later at the closing table That the tax implications just cost them a fortune.

00:07:10: Yeah,

00:07:10: but net proceeds are just a fraction of what they modeled in their heads.

00:07:13: Which is why understanding?

00:07:15: The legal architecture is just as important as the operational strategy.

00:07:19: But you know even if you master the tax implications.

00:07:22: Peter Hogan shared a really stark cautionary tale about just how fragile these transactions are.

00:07:28: Oh, The vanishing buyer?

00:07:29: Yes!

00:07:30: He noted a case where a buyer offered seven million pounds went through the entire process signed the share purchase agreement at the SPA and then just vanished completely four weeks before completion.

00:07:42: Just a complete ghosting at the finish

00:07:44: line.

00:07:44: Right, and when people hear that they assume there must have been bad faith or some hidden lawsuit...

00:07:50: But often it's just a failure in their own capital stack right?

00:07:52: Exactly!

00:07:53: A buyer's investment committee might get cold feet Or the debt markets shift And their financing just falls through.

00:07:59: The highest offer on paper is completely meaningless if doesn't survive funding math or actual reality of closing.

00:08:07: So assuming your buyer doesn't pull a vanishing act and your diligence holds up, how do you actually agree on the math?

00:08:14: Let's talk valuation.

00:08:15: Yeah let's get into it because the vocabulary evaluation is incredibly nuanced right now especially depending on the market segment.

00:08:23: Christoph Todder provided this great breakdown of this within the HVAC roll-up market.

00:08:29: Right looking at size metrics

00:08:30: yeah he pointed out this distinct shift in how buyers value businesses based on size Below roughly one million dollars in earnings, buyers price businesses on SDE which is sellers discretionary earnings.

00:08:43: Let's break down the mechanics of SDE quickly because it fundamentally changes the negotiation.

00:08:47: It

00:08:47: really does.

00:08:48: when you buy a smaller business, You're essentially buying a job.

00:08:51: so FDE takes an ed income and adds back to your salary their health insurance maybe The car lease run through the business all those discretionary perks being in owner operator.

00:09:00: But once a business crosses that one million dollar threshold?

00:09:13: might read a headline about a competitor selling for an ADIX EBITDA multiple, and they demand that same multiple.

00:09:18: But quoting in EBITTA multiple for a three hundred dollar K business is just speaking the wrong language completely.

00:09:24: at that larger scale buyers are acquiring a standalone corporate entity.

00:09:29: That requires professional management.

00:09:31: Todd also highlighted how buyers treat recurring revenue.

00:09:35: Sellers love to tout their service agreements but buyers heavily discount unverified recurring revenue

00:09:41: Because having the agreements is useless if you can't produce the actual roster and renewal rates.

00:09:46: Exactly!

00:09:47: The baseline valuation always requires verified historical cash flow, but the real friction usually revolves around the future state – the synergies

00:09:56: Yeah…and Dr.

00:09:57: Krobenian Eichner broke down how investment bankers mathematically approach valuing synergies.

00:10:02: When a buyer models the acquisition they use a discounted cash-flow analysis projecting future cash flows.

00:10:09: The critical insight here is that synergies are calculated completely separately and added to the target's standalone DCF value.

00:10:17: Because they're viewed as riskier?

00:10:18: Exactly, because they were viewed as riskiere than traditional free cash flows They often receive an additional risk premium when being discounted.

00:10:25: Okay I have to push back on this a little bit So far.

00:10:28: I mean mathematically valuing synergies Is basically counting your chickens before they hatch right.

00:10:34: so it makes total sense To apply a risk premium.

00:10:37: But in a live negotiation, doesn't that just become a highly subjective negotiating lever for the buyer to push the price down?

00:10:45: Oh hundred percent.

00:10:47: It's totally subjective in practice!

00:10:49: The buyer wants all of the upside of synergies while transferring the execution risk to seller valuation.

00:10:54: Right We can't pay this synergy today because it is too risky but we definitely plan on making money tomorrow

00:11:00: Exactly Which is why sell side advisors have to vigorously defend the achievability.

00:11:06: But speaking of risk premiums, nowhere is the valuation debate more wild right now than in AI.

00:11:11: Oh man yeah!

00:11:13: Hurwings Springer detailed what buyers are actually scrutinizing when acquiring an AI company.

00:11:17: It's

00:11:17: not just about top line growth.

00:11:19: No Buyers looking at specific foundational vulnerabilities Like how easily can a customer replace you?

00:11:26: How much your product relies on someone else's foundational model?

00:11:29: Yeah

00:11:29: if you're just thin rapper or another model Your mode basically non-existent.

00:11:33: And

00:11:34: crucially What is the provenance of your training data?

00:11:37: If you trained your model on scraped copyrighted material, a buyer isn't acquiring a proprietary asset.

00:11:43: They're requiring massive liability

00:11:45: Especially with things like the EU AI Act

00:11:48: rolling out.

00:11:49: Oh totally Which by the way if want to make sure that you catch our future deep dives tracking these wild AI valuation shifts and tech regulations Take a second subscribe

00:11:58: Good call because it's moving fast.

00:12:00: It really is,

00:12:01: but pulling back to macroevaluation data Peter Slagers and Archie Samson shared some fascinating numbers from Bain's global M&A report.

00:12:09: twenty-twenty six

00:12:10: Yeah the rebound

00:12:11: Right.

00:12:12: Global M&A value rebounded forty percent to four point.

00:12:15: nine trillion dollars and it's being heavily dominated by scope deals,

00:12:19: right?

00:12:19: So buying fundamentally new capabilities rather than just buying direct competitors to scale up

00:12:24: exactly?

00:12:25: furthermore Baynes data completely contradicts that widely repeated claim.

00:12:29: we always hear that seventy percent of m&a deals

00:12:31: fail the seventy percent myth.

00:12:33: So glad we're talking about this.

00:12:34: It's everywhere, but in reality the data shows that companies with an active M&A strategy see shareholder returns two point three times higher than those without one.

00:12:43: The

00:12:44: market penalizes inaction And this is the big transition here.

00:12:48: It's fascinating that the data shows M&A as a winning strategy, but achieving those two point three X returns requires surviving the most dangerous phase of all

00:12:58: integration?

00:12:59: Yes you paid them multiple your diligence held up.

00:13:02: now You actually have to run it without breaking in.

00:13:04: Let's talk post-merger integration and culture.

00:13:06: Yeah, Francine D shared a great example on this.

00:13:08: she said the biggest mistake in post merger integration PMI is solving for timelines instead of Solving For People

00:13:14: hitting that arbitrary day one hundred milestone

00:13:16: right if cross functional work streams aren't synchronized from Day One operational friction just turns directly into customer turn

00:13:23: Because the customer doesn't care about your synergy targets, they just know their support ticket took three days because CRM systems aren't talking to each other.

00:13:31: Exactly!

00:13:32: Francine recommends a friction-first audit before even building out those standard integration checklists

00:13:37: which ties perfectly into an operational tactic.

00:13:40: from David Fubini regarding IT integration.

00:13:43: He found that teams who intentionally keep the acquired systems running completely untouched actually outperformed the teams that try to stage dramatic restart just to prove readiness.

00:13:54: The forced migration, it's so dangerous!

00:13:56: It's awful and invisible.

00:13:58: boring day one is actually the ultimate sign of success

00:14:01: And we are seeing real-world patients on this front.

00:14:04: Alyssa Klein highlighted how Santander is handling its acquisition of Webster Financial.

00:14:08: they're taking Very slowly, to avoid customer disruption.

00:14:13: Like

00:14:13: incredibly slowly?

00:14:14: Yeah!

00:14:15: Brands and systems won't change for the first twelve months... ...and the core system's conversion isn't even planned until the end of twenty-twenty seven.

00:14:21: Yet

00:14:21: requires so much discipline from leadership.

00:14:23: when everyone is normally demanding immediate cost synergies It really does.

00:14:27: But you know, systems are one thing.

00:14:29: The human element is vastly more complex.

00:14:32: Clint C Kendrick shared this profound perspective on employee resistance.

00:14:36: We always assume employees resist M&A because they fear change

00:14:39: but they don't

00:14:40: Right?

00:14:40: They don't.

00:14:40: They are actively mourning a future they had already started planning.

00:14:43: The psychological contract just shatters

00:14:46: Exactly.

00:14:47: Identity breaks down at the organizational level, team-level and individual.

00:14:51: If you were promised VP track And suddenly the org chart resets You aren't resisting new software Your mourning your career trajectory.

00:15:00: Most integration plans fail to address any of this.

00:15:03: Just focused on real estate consolidation.

00:15:06: But it raises an appointed question for you If an acquisition fundamentally breaks a team's identity, can any amount of operational hyper care actually fix that?

00:15:16: Or do you just have to accept a certain level of talent bleed.

00:15:19: It

00:15:19: is tough reality!

00:15:21: Enrico Moet gave us stark reality check on the human cost-of scale.

00:15:25: looking at the Omnicom IPG merger

00:15:27: Oh The twenty five billion dollar entity.

00:15:28: Right

00:15:29: Nine months post close they cut four thousand jobs eliminated twenty plus agency brands and doubled their cost savings targets to one point five billion dollars.

00:15:38: So the efficiency gains flow straight-to-the shareholders, but the disruption lands entirely on people?

00:15:43: Exactly!

00:15:44: And furthermore Moet points out that scale alone doesn't mean better service for the client.

00:15:50: it just means margin compression and less leverage of independent publishers in this ecosystem.

00:15:55: It's the ruthless math of consolidation

00:15:58: Which leaves us with a final thought to ponder.

00:16:01: We spend months meticulously negotiating the exact LOI wording, and you know we argue endlessly over EBITDA multiples and risk premiums.

00:16:10: But if the identity and culture of The Acquired Company are completely shattered on day one does financial math even matter?

00:16:17: What is true?

00:16:18: uncalculated cost lost trust in an acquired business

00:16:21: exactly.

00:16:22: And what about the acquirer's original team?

00:16:24: They get handed massive, tedious integration workloads merging databases auditing compliance usually with no extra pay.

00:16:31: You risk severe burnout and resentment among your own best people.

00:16:35: you're forcing them to carry the weight of a deal they didn't even ask for.

00:16:38: that is such a crucial blind spot.

00:16:39: it really

00:16:48: Exit strategies, venture capital private equity fundraising and strategy in consulting.

00:16:53: Thanks so much for joining us!

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