Best of LinkedIn: M&A Insights CW 41/ 42

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about M&A insights in calendar weeks forty-one and forty two.

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

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00:00:33: Yeah, imagine selling you're life work for like five million dollars feeling incredibly proud of securing your employees futures right?

00:00:41: Right a great feeling

00:00:42: exactly.

00:00:43: but then completely forgetting that you just handed the buyer three point five million Dollars in real estate for free.

00:00:51: oh wow Yeah, that sounds impossible.

00:00:53: It does but that exact scenario is actually playing out right now in certain markets.

00:00:57: So we are analyzing a curated stack of insights straight from the LinkedIn feeds of top deal makers Covering calendar weeks forty one and forty two Mm-hmm And the mission of this deep dive Is to basically shortcut The noise and deliver exactly what strategy m&a?

00:01:14: An investment professionals really need To know.

00:01:16: right?

00:01:16: no Exactly

00:01:17: because I mean if you Are sitting on a board Right Now or if you're prepping your company for a sale in the next twenty four months, The rules of game have fundamentally changed.

00:01:26: Oh absolutely!

00:01:27: We are looking at why deals are failing right off the finish line and how post-close execution has completely replaced capital as biggest constraint on success And also how artificial intelligence is acting both as massive value driver and honestly it's hidden value destroyer depending which side to table

00:01:48: Right, so to understand how to actually execute in today's market you first need to look at where the money is flowing.

00:01:54: Yeah And right now it is a highly uneven landscape.

00:01:56: I mean we are seeing a massive split between deal value and deal volume across different sectors.

00:02:02: To give you an idea of just how stark that split Is?

00:02:06: You Just have to Look At The Numbers Coming Out Of The UK.

00:02:08: Robert Lordwell Brought Up A Wild Statistic UK M&A Deal Value Jumped A Staggering Fifty-Eight Percent to five hundred seventy two point eight billion dollars in the first nine months of twenty-twenty

00:02:20: six.

00:02:20: Wow, right?

00:02:21: But The actual deal count dropped sixteen percent.

00:02:26: so the recovery is Incredibly top heavy

00:02:29: it really is.

00:02:30: It's heavily concentrated In megatransactions while the middle market Is basically just you know sitting on its hands.

00:02:36: Yeah and we're seeing a similar kind Of selective deployment elsewhere too like Tulan Erdemi highlighted what's happening in Germany.

00:02:43: Oh right, with the Middle Eastern investors.

00:02:45: Exactly!

00:02:46: The recovery there is being fueled notably by them and they are moving way beyond their traditional energy plays actually pouring forty billion euros into German tech & digital infrastructure.

00:02:57: That's a massive pivot

00:02:59: It IS.

00:03:00: But if you look at cyber security...the dynamic completely flips.

00:03:04: There was great debate in the feed this week where Dominic Perry noted that Cyber M&A is hitting absolute record volumes.

00:03:10: Yeah something like one hundred seventy deals on Q-three alone.

00:03:12: Right.

00:03:14: And if you look at Eric McAlpine's data, the sector is pacing for a record four hundred fifty transactions this year but check sizes are shrinking fast

00:03:23: because The average disclosed deal fell from two hundred seventy five million down to one hundred sixty-two million.

00:03:28: exactly what we're seeing here Is that tuck ins?

00:03:31: Are completely replacing mega deals.

00:03:33: buyers aren't buying market share anymore.

00:03:35: They are buying missing puzzle pieces.

00:03:38: so If your founder pitching your massive scale You're losing.

00:03:41: But if you're pitching a highly specific, distinctive capability the buyer lacks.

00:03:45: You are winning!

00:03:46: Okay I have to push back on this whole narrative of cautious surgical buyers just doing neat little tuck-ins though.

00:03:53: Oh really?

00:03:54: Why is

00:03:54: that?!

00:03:55: Because If look at the aerospace and defense sector.

00:03:57: right now it's an absolute wild west gold rush.

00:04:00: That's fair.

00:04:01: There was nothing cautious about it.

00:04:03: Craig Pickin pointed out Aerospace Buyers are getting so aggressive they value businesses on forward EBITDA A full year out.

00:04:11: Wow, so essentially paying you today for the growth that YOU MIGHT achieve next

00:04:15: year?

00:04:16: Exactly.

00:04:17: And private equity firms are SO desperate to win these deals... ...that they're using Equity First financing up front!

00:04:23: Meaning…they just write the whole check-in cash.

00:04:25: Literally THE ENTIRE CHECKING CASH from their fund—just to eliminate any debt contingencies and beat out competition….

00:04:31: …and then the plan is to figure OUT the bank financing and lever it after the close.

00:04:35: It's frantic.

00:04:37: IT REALLY IS.

00:04:39: So, I mean if aerospace is this frantic gold rush of private equity cash Where's the patient money going?

00:04:45: That is the critical question.

00:04:47: and The patient money is coming from family offices.

00:04:51: Hendrik Jordan points to a massive defining transaction here.

00:04:53: It boots UK deal.

00:04:55: Yeah,

00:04:55: the Western Family agreeing to buy Boots UK for twelve point seven billion dollars.

00:04:59: I mean think about the mechanics behind that.

00:05:01: Traditional Private Equity firms are sitting on aging portfolios

00:05:05: right.

00:05:05: they have a structural problem with that five-to ten year fund lifespan

00:05:08: Exactly.

00:05:09: The clock is always ticking, they need exits and the IPO windows have been incredibly shaky lately but a global family office doesn't have a five-year funclock ticking down

00:05:19: No!

00:05:19: They're playing it generational game

00:05:21: exactly.

00:05:22: so Global Family Capital is stepping right into the gap to buy these highly defensive cash generative assets that can structure complex carveouts.

00:05:30: literally wait decades for their return.

00:05:32: So we have aggressive PE capital fighting tooth and nail in aerospace, massive patient capital from family offices deploying twelve billion dollar checks.

00:05:42: But since there is clearly aggressive capital available on the market why are so many sales falling through?

00:05:48: Because they absolutely are.

00:05:49: Oh definitely.

00:05:51: And it comes down to a harsh reality check on seller preparation.

00:05:56: The market has become brutal for underprepared sellers and buyers are deeply skeptical right now.

00:06:01: That skepticism is the defining trait of the current buy side.

00:06:04: I mean, Andrew White argues that strong businesses simply no longer sell themselves.

00:06:09: Sellers have to fundamentally shift their mindset.

00:06:11: Right you have.

00:06:12: think like a buyer

00:06:13: Exactly!

00:06:13: You've got.

00:06:14: build concrete conviction in companies future value before ever.

00:06:17: go market and prove business built for where it's going not just where its been.

00:06:22: And failing to prove that future value basically kills.

00:06:27: Alexis Grant noted that many transactions are falling apart right now specifically because of declining revenues during the sale process itself.

00:06:35: Yeah, she called out media companies.

00:06:36: Right?

00:06:36: yeah Media company is getting absolutely hammered by AI and Google traffic shifts.

00:06:42: And it makes perfect sense when you think about the mechanics of a buyout

00:06:45: Because in due diligence buyers aren't just looking at your trailing twelve months of revenue.

00:06:49: No

00:06:50: They are modeling your future cash flows to pay down-the-death.

00:06:53: they were taking on to buy you.

00:06:55: So if a recent search engine update just wiped out forty percent of your organic site traffic, Your historical profits are completely irrelevant to the buyer.

00:07:03: Yeah The future cash flow is just gone.

00:07:04: Exactly.

00:07:06: In fact some advisors or privately calling this the toughest market in recent memory.

00:07:10: I believe it and A big part of surviving that tough market Is valuation honesty.

00:07:16: It's massive differentiator right now.

00:07:18: Oh for

00:07:18: sure.

00:07:19: Peter Hogan warns about danger of advisers who flatter founder To win mandate.

00:07:24: If an advisor quotes a five million pound valuation when the underlying metrics show that business is actually only worth three million pounds, they aren't doing the seller of favor.

00:07:33: No!

00:07:33: They are just going to leave their owner stranded on market for twelve months with zero offers.

00:07:38: Exactly

00:07:39: The fundamentals of valuations don't magically change because an adviser wants secure listing fee.

00:07:46: Speaking about gaining edge in tough markets If you are prepping your company for a transaction or looking to deploy capital, You should hit subscribe so you don't miss our future deep dives into private equity and M&A.

00:07:58: We really do the heavy lifting on these insights.

00:08:00: So...you don't have too

00:08:02: For sure.

00:08:03: And if we connect that idea of valuation honesty To the actual timeline of a deal This raises an important question about when The real price is set Because most founders assume the valuation debate happens When the letter of intent, ya know?

00:08:16: That LOI arrives.

00:08:18: That's the big moment, right?

00:08:20: See that is The Great Founder illusion and Tobias Herman insights absolutely Shatter it.

00:08:26: The LOI only sets the ceiling.

00:08:29: Wow Yeah It is the absolute maximum you will ever get.

00:08:33: Your actual exit valuation has decided two years prior deep inside your balance sheet audit trail.

00:08:38: Right because institutional buyers don't fight You on the headline multiple upfront

00:08:43: exactly okay they let you feel good about the Big Number On the LOI.

00:08:46: They make their actual returns during confirmatory diligence.

00:08:50: This is where they do quality of earnings reviews, or QV.

00:08:54: Where the financial forensic teams come in and shave down your adjusted profits?

00:08:58: Precisely!

00:08:59: If you have unverified EVA to add-backs Or if your revenue recognition isn't ASC's six oh six compliant

00:09:06: Meaning that you can actually prove this specific moment You earned a particular dollar according to accounting standards

00:09:11: Right...they will penalize.

00:09:13: Or if you haven't properly calculated your working capital peg, which is the baseline amount of cash tied up in daily operations They will drain your cash dollar-for-dollar before the wire ever transfers.

00:09:24: Missy accounting turns directly into a lower purchase price.

00:09:27: That's brutal.

00:09:28: And beyond just the accounting ledgers there are massive physical asset blind spots where sellers inadvertently transfer values straight to buyer.

00:09:37: Oh this goes back to hook.

00:09:38: we opened with

00:09:39: Exactly James Hall's shared a fascinating dynamic happening in Japan right now.

00:09:43: You have founders who routinely sell their companies for around five million dollars, largely out of a sense of loyalty to their employees and to ensure the company continues its legacy.

00:09:54: But doing so they completely ignore real estate.

00:09:56: Right They ignored that thirty-five million dollars of real estate The manufacturing plant is actually sitting on It passed an embedded value across the table.

00:10:05: That's unbelievable.

00:10:07: one reason why activist funds and private equity have performed so incredibly well over there.

00:10:12: They are buying the operations at a fair multiple, realizing that massive hidden asset value of land practically for

00:10:19: free.".

00:10:20: And even if a founder survives the Q&A haircut gets the valuation right...and doesn't leave millions in real estate on the table.

00:10:27: they're still failing to prep for life after the exit!

00:10:30: Yeah Jay Greyson & Philip Herman both brought this up.

00:10:32: it's not just about surviving The Data Room.

00:10:35: The loss of identity when Monday rolls around, and you have nowhere to be is profound.

00:10:40: Definitely.

00:10:41: Pair that with restrictive earnouts.

00:10:43: where are forced work for the new owner or vendor loans that tie your personal wealth into future performance in business no longer control it can quickly turn a massive financial win into very real personal crisis.

00:10:55: You plan the exit not just transaction.

00:10:58: So founders leaving value on table struggling life after the exit.

00:11:03: But let's flip the perspective and look at the fire side of the table.

00:11:08: Because getting the founder to sign the paperwork is hard, but as we are seeing signing in the paperwork Is actually where the real value destruction begins?

00:11:17: Executability not capital is now the ultimate constraint on M&A success.

00:11:22: Rajiv Singh referenced BCG's twenty-twenty six mna report which absolutely proves us out Asset readiness and regulatory steps or what determined What actually makes it to the closing table today.

00:11:33: Right.

00:11:33: But getting to the close isn't succeeding, The closing is just a starting line.

00:11:39: Mike Pachowski highlighted in his survey of over five hundred executives revealing pretty sobering statistic

00:11:45: Only one-in three acquirers fully achieve their deal.

00:11:49: thesis objectives

00:11:51: Yes Two thirds are falling short and for very reason.

00:11:53: they bought that company at first place.

00:11:56: In Dr.

00:11:56: Austin, Micah DeVries pinpoints exactly why this happens.

00:12:00: Companies prepare much better for buying businesses than they do for owning them.

00:12:04: The adrenaline is really in the chase, but you have to build the integration capability into the acquisition case.

00:12:11: long before closing.

00:12:13: You have test your organization's absorption capacity.

00:12:16: So like if you cannot explain exactly how your current teams will integrate the new software, absorb the new employees and actually create this synergies you're paying a premium for.

00:12:26: You are committing capital to a thesis.

00:12:28: Your organization simply can not deliver

00:12:30: precisely.

00:12:31: Okay Let me challenge that slightly though.

00:12:34: go for it.

00:12:35: If you plan the integration And it works perfectly on an operational level Like, if the IT systems talk to each other.

00:12:43: The key engineers stay and new products ship on time then it's a success right?

00:12:49: Ultimately operations dictate outcome.

00:12:51: You would think so but no A perfect operational integration can still completely destroy shareholder value If underlying financial engineering is flawed.

00:13:01: Really Yeah.

00:13:02: Shaharyar Khan provided a brilliant case study of this with FMC's twenty-seventeen carve out of Dupont's crop protection business.

00:13:09: Okay, operationally it was total success.

00:13:12: the acquired products sold incredibly well and integrated smoothly but The capital allocation is fatally flawed.

00:13:18: how so?

00:13:19: FMC board tied a rising dividend payout to their net income.

00:13:24: the problem Was that net income was heavily reliant on temporary patent income from the newly acquired DuPont assets.

00:13:31: Oh, I see where this is going.

00:13:32: Right?

00:13:34: So the more of products succeeded in short term The more cash left the company and form dividends.

00:13:40: And when those patents inevitably expired FMC faced a massive

00:13:43: cliff.

00:13:44: Wow They had paid out all temporary profits to shareholders Kept all death they used by asset and ultimately destroyed Eighty five percent Of their equity value.

00:13:55: Exactly Bad capital allocation ruined a perfect operational integration.

00:14:00: That

00:14:00: is wild!

00:14:02: It reminds me of the homeowner taking out massive Home Equity line-of credit to pay for lavish vacations, just because their house value temporarily spiked.

00:14:10: and then housing market crashes...

00:14:11: That's a perfect analogy.

00:14:13: They confused temporary spike with permanent cash flow.

00:14:17: that was brutal lesson.

00:14:18: And even if you get the capital allocation right there are hidden killers at ground level during integration.

00:14:25: Yeah, John Suze pointed out that in tech deals undocumented systems and technical debt silently erode value.

00:14:32: Because the target looks mature on the pitch deck.

00:14:34: but once you buy it You realize critical processors are hanging by a thread of legacy code

00:14:39: Exactly.

00:14:40: And then Tariq Amin and Carl Guala emphasize That cultural alignment is The true integration engine A mean reference to successful integration Of four different acquired entities into humane.

00:14:52: Without common values and consistent leadership, the operational plans just fall apart on contact with reality.

00:14:58: So true!

00:14:59: And leading that kind of cultural and operational integration requires a massive shift at the very top.

00:15:05: Ryan Goral makes great point about how serial acquisition fundamentally changes the CEO's job.

00:15:11: The first steal a company does is an all-hands event.

00:15:13: Right it's like cooking Thanksgiving dinner.

00:15:16: Everyone rallies...the CEO runs Point.

00:15:18: It's exhausting but its'a finite event.

00:15:21: Exactly.

00:15:22: but the second deal and third.

00:15:25: That requires transitioning from cooking a holiday meal once-a year to running a commercial kitchen every single night.

00:15:31: Oh,

00:15:32: that makes sense!

00:15:33: It requires standard operating procedures.

00:15:35: it requires delegation and clear ownership of the M&A pipeline by dedicated teams.

00:15:40: if the CEO tries to absorb The Second Deal into their existing job relying on adrenaline instead of process and the restaurant is going to burn down.

00:15:52: You have to transition from a company that did an acquisition, that transition from doing things manually to building scalable systems brings us directly to the biggest shift happening in how we execute these deals.

00:16:07: We cannot ignore The Elephant, which is artificial intelligence.

00:16:11: AI is completely reshaping both what we are buying out there and actually executing transactions.

00:16:17: It's acting as a tool for doing deals And high risk target of M&A itself

00:16:24: Right.

00:16:24: Let look at the targets side first.

00:16:26: Dominic Dagon points out that M&A within the AI ecosystem is ninety-five percent capability driven.

00:16:33: Meaning horizontal consolidation, where companies buy their direct competitors just to gain market share sits at less than one per cent?

00:16:40: Exactly!

00:16:41: The AI Ecosystem Is Currently Being Assembled Not Shaken Out.

00:16:45: But Leanne Pot warns buying an AI company should actually be exception not

00:16:50: rule.

00:16:50: Why's That?

00:16:52: Well if you pay a massive control premium for an AI model or algorithm you are buying a capability that will likely commoditize very quickly.

00:17:00: As open source models improve, the algorithm itself loses its unique value.

00:17:05: I see so.

00:17:06: The only lasting defensible advantage sits in the proprietary data You feed into it and the unique workflows you build around the

00:17:14: model.

00:17:15: Spot on.

00:17:16: right if you just buy the algorithm you bought a depreciating asset.

00:17:21: But if we switch to looking at AI as a tool for execution The gains we are seeing are incredible.

00:17:26: It is accelerating the deal cycle in ways that fundamentally alter private equity economics.

00:17:31: Oh, for sure.

00:17:32: Miles Feinberg noted that PE firms are now using AI to encode their hard no

00:17:37: rules.

00:17:38: Yes They use large language models to pre-filter inbound teasers and confidential information memorandums based on non-negotiable criteria like customer concentration caps or margin floors.

00:17:50: Right, it takes seconds and saves immense amounts of partner time that used to be burned reading through pitch decks for companies that were never going to a fit.

00:17:57: And on the legal side Robert Embroji highlighted new platform called Use ABI.

00:18:02: It literally reads a contract and produces purchase agreement markup an issues list for M&A lawyers in about thirty minutes at quality of firm associate.

00:18:12: Think about broader economic implications of this moment.

00:18:16: This changes entire model.

00:18:17: professional services Definitely.

00:18:19: Nikola Lazaroff calls this concept, services as software.

00:18:23: Traditional advisory and legal firms run at maybe a thirty-eight percent project margin.

00:18:28: their only way to grow revenue is to hire more humans and bill more hours.

00:18:33: whereas software has a service or SaaS companies running eighty to ninety percent margins because they build the product once since sell it infinitely

00:18:40: exactly.

00:18:41: but AI native advisory firms are now bridging that gap.

00:18:44: They are hitting fifty to sixty percent gross margins because they can do vastly more analytical and legal work with the exact same size team.

00:18:52: They're starting to run on the same margin curve as the tech companies, they advise

00:18:56: that margin shift is going to disrupt the entire advisory landscape.

00:19:00: but we have provide a critical counterweight here always because AI isn't just magic wand it's also becoming massive value destroyer in M&A.

00:19:09: if you aren't careful

00:19:10: how so?

00:19:11: Andre Wassmann warns about what happens during technical due diligence If an AI capability being sold is really just a glossy pitch deck presentation.

00:19:19: Oh, right?

00:19:20: Yeah if it doesn't have resilient high quality data pipelines behind it and It hasn't survived real-world operational stress those valuations are getting drastically slashed at the finish line.

00:19:30: fires Are ripping the hood off and realizing there's no engine.

00:19:33: Right

00:19:33: they aren't paying for the hype anymore

00:19:34: exactly.

00:19:35: And Clint C Kendrick reminds us that on the integration side using general purpose AI completely fails in high stakes M&A execution unless deeply grounded in specific domain context.

00:19:47: You can't just unleash a generic chatbot on a highly complex post merger integration plan and expecting to magically find the revenue synergies?

00:19:55: Yeah, it requires human expertise to actually direct the tool.

00:19:59: The playbook only works if you understand the reality of your own capability gaps.

00:20:03: that AI can process the data but cannot set the strategy

00:20:07: exactly.

00:20:08: so let's unpack everything we've covered today.

00:20:10: The M&A game right now isn't about sourcing cheap capital anymore.

00:20:16: The capitol's there, whether from aggressive PE funds or multi-generational family offices the real game is about rigorous post close execution flawless presale accounting that starts two years before you ever see an LOI and deploying AI safely to accelerate your deal cycles rather than just buying a hype hoping for multiple expansion.

00:20:38: And if we look forward, this raises a fascinating scenario to ponder.

00:20:42: We just talked about global family offices writing twelve billion dollar checks without five-year fund clock breathing down their necks.

00:20:49: and we just talked about AI generating legal markups in thirty minutes and radically altering advisory margins by allowing small teams do the work of fifty associates.

00:20:59: So what happens when ultra lean generationally patient family officers equip themselves with AI native M&A teams.

00:21:10: Will they completely outmaneuver traditional private equity funds that are burdened by heavy overhead, massive headcount and strict time horizons?

00:21:18: It is definitely something for you to keep an eye on as this market evolves!

00:21:36: Thank you so much for joining us on this deep dive and don't forget to hit subscribe.

00:21:40: So, you never miss an insight.

00:21:41: See ya next time.