Best of LinkedIn: M&A Insights CW 39/ 40

00:00:00: provided by Thomas Allgeier and FENIS, based on the most relevant posts on LinkedIn about M&A insights in CW, thirty nine and forty.

00:00:07: FENIS is a B to B Mark research company supporting M&A consultancies with the marketing competition perspective, for example, in commercial due diligence.

00:00:15: This edition is brought to you by our partners Informa and Studio ZX.

00:00:19: Don't miss out on their upcoming conferences, super return Middle East, super return Europe and the twenty third German corporate M&A Congress.

00:00:27: Find the links to all three conferences in the description.

00:00:30: Welcome to the deep dive.

00:00:32: Today we're jumping straight into the M&A and investment landscape.

00:00:35: We've sifted through insights from professionals on LinkedIn, specifically from calendar weeks, thirty nine and forty.

00:00:41: Yeah.

00:00:41: And the goal here is pretty straightforward.

00:00:43: We want to give you, if you're in strategy, PE, VC, or consulting some actionable intelligence, we're looking past just the headlines to see where the money's really flowing, what buyers are actually valuing right now, and importantly, the new non-negotiables and diligence.

00:00:57: Think tech, think governance.

00:00:59: So

00:00:59: basically the stuff that matters, cutting through the noise.

00:01:01: Exactly.

00:01:02: Actionable intelligence, not fluff.

00:01:05: You get the shortcut to knowing what's really

00:01:07: up.

00:01:08: Okay, let's dive into our first theme then.

00:01:11: Strategic rationale and market dynamics.

00:01:13: It feels like we're moving past hesitation towards, well, bigger moves.

00:01:17: That's definitely the feeling.

00:01:19: The market seems to be shifting towards big bets.

00:01:21: Frank Akila pointed this out.

00:01:23: Overall, deal volume might be down, but the aggregate value, that's up.

00:01:28: Capital is concentrating, fewer deals, but much larger, more transformative ones.

00:01:32: Right, so those small, incremental deals just aren't cutting it anymore.

00:01:36: The market wants more.

00:01:37: It seems so.

00:01:38: Scott A. Scanlon observed this pressure on leadership to really produce returns, and Venus Kennedy and Richard Dorsett, they emphasize that companies going for transformational M&A are seeing much better shareholder returns.

00:01:49: We're talking two to three times better than just incremental approaches.

00:01:54: So yeah, it's about size and real impact now.

00:01:56: And we saw some big examples driving this consolidation, like in banking, Laura Huntley highlighted Fit Third America.

00:02:03: That looked like pure scale play, right?

00:02:05: Absolutely, building a massive regional player, getting complimentary footprints, boosting that balance sheet resilience.

00:02:12: In this kind of right environment, scale is safety.

00:02:16: And what about infrastructure in tech?

00:02:18: That seems to be heating up massively.

00:02:20: Oh, definitely.

00:02:21: And what's fascinating is how traditional M&A logic synergies, cost optimization, is now being applied to, well, AI infrastructure.

00:02:28: That huge, forty billion dollar BlackRock GIP deal for aligned data centers, wanting Nassio Toraconi was tracking this, its prime example.

00:02:36: Data centers aren't just buildings anymore, they're critical AI assets, high multiple assets.

00:02:41: Buyers are looking at the engine room of AI itself for traditional M&A value drivers.

00:02:46: Wow.

00:02:47: So while those mega deals are reshaping the top end, there's also something interesting happening in the mid-market, isn't there, with family offices.

00:02:53: Yes,

00:02:54: that's a really interesting trend.

00:02:55: Tulahar and Demi and Taylor Perry noted their increasing traction, especially with the German middle stand.

00:02:59: Founders seem to find them, often, a better cultural fit compared to PE or even strategics.

00:03:04: Why is that exactly?

00:03:05: Is it just patience?

00:03:07: It's largely the evergreen capital.

00:03:09: They think in generations.

00:03:11: not just quarters.

00:03:12: That offers huge flexibility for sellers, think gradual exits, earnouts, structures that really protect the company's culture and legacy.

00:03:19: It's a different mindset.

00:03:21: That flexibility must be a serious advantage.

00:03:23: So switching back to founders, prepping for an exit, what are the key lessons?

00:03:28: Joe Luan had some specific thoughts on what buyers value now.

00:03:32: Yeah, buyers want very specific value.

00:03:34: It's not just growth for growth's sake.

00:03:36: We saw Kami, acquiring book creator, the driver there, was consolidating twenty million users, less about the immediate revenue multiple.

00:03:43: Okay, so user base over pure financials in that case.

00:03:45: Or acquiring expertise, like Dain's group buying TB-aid innovation.

00:03:50: And here's a key takeaway.

00:03:51: Embracing being, well, boring can be a strength.

00:03:54: Predictable cash flows, stability that often beats high growth uncertainty.

00:03:58: Drew F. had that sobering stat, didn't he?

00:04:01: Consumer brands take, what, eight point five years on average to reach a strategic acquisition?

00:04:05: Eight

00:04:05: and a half years.

00:04:06: Ouch.

00:04:06: Definitely a long game.

00:04:07: You have to be prepared for that.

00:04:09: Okay.

00:04:09: Let's shift gears.

00:04:10: Theme two, deal execution, financials and risk.

00:04:15: The mechanics of getting a deal done and where things get sticky.

00:04:20: Right, and it often starts with the money, doesn't it?

00:04:22: Specifically, that adjusted EBITDA number, always a point of contention.

00:04:26: Dirk Solmer really broke that down well.

00:04:29: The core issue is founders see the reported earnings, but buyers, they only care about what the business earns in their hands.

00:04:36: Exactly, which means normalization, and that can be, well...

00:04:41: Brutal.

00:04:42: Adjusting founder compensation if it's way above market, stripping out lifestyle expenses.

00:04:46: That fancy company retreat that a new owner just wouldn't pay for gets added back.

00:04:51: They also look at R&D capitalization, potential synergies from redundant costs.

00:04:56: It's about finding the true underlying earnings power for the buyer.

00:04:59: which directly ties into how much leverage a founder has.

00:05:03: Alejandro Cremides was pretty insistent that founders need to master the M&A language.

00:05:07: They absolutely have to.

00:05:08: It's not just jargon, it's about understanding the stakes.

00:05:11: So what specific language bits are most critical for a founder?

00:05:14: Knowing the core mechanics, like the difference between an asset sale and a stock sale is huge, right?

00:05:20: An asset deal usually protects the buyer more from past liabilities.

00:05:24: Whereas a stock deal might be better tax wise for the seller, but the buyer inherits everything, warts and all.

00:05:30: Precisely.

00:05:31: And understanding financial impact accretion versus dilution, does this deal actually add to the buyer's earnings per share immediately or does it detract?

00:05:39: If you don't get these basics, you lose control fast.

00:05:42: And that control vanishes even faster.

00:05:44: Once the letter of intent, the LOI is signed, doesn't it?

00:05:47: Oh, absolutely.

00:05:48: Craig Arsager made a great point.

00:05:50: The LOI is just a roadmap.

00:05:52: It's not the final destination.

00:05:53: Sellers really need to push hard on key terms before signing that exclusivity

00:05:58: clause.

00:05:58: Because once you're exclusive, your leverage just tanks.

00:06:01: Completely.

00:06:01: The buyer knows you can't shop the deal around.

00:06:03: And Pat Linden had a stark warning, pushing hard issues off until later.

00:06:08: For the seller, later usually means never.

00:06:11: You lose the chance.

00:06:12: Okay, so internal friction aside, what about external risks?

00:06:16: Dr.

00:06:16: Angela Carrick pointed out five big challenges that often derail bank finance deals.

00:06:21: Yeah, these are serious hurdles, things like regulatory compliance, antitrust, securities laws, that kind of thing.

00:06:28: Then there are the inevitable fights over risk allocation, like indemnification clauses.

00:06:34: And cross-border complexity is a growing headache.

00:06:37: Dealing with different accounting standards, GAP versus IFRS.

00:06:41: Right, just to clarify for listeners, GAP is the US standard, IFRS is more global, and they treat things like... revenue recognition or goodwill quite differently, don't they?

00:06:50: Exactly.

00:06:51: So the same company's financials can look materially different depending on which lens the buyer applies.

00:06:55: It's not just translation.

00:06:57: It impacts the economics.

00:06:58: Plus, you have all the cross-border tax minefields.

00:07:01: And Seema Dubey reminded us about the classic legal deal breakers, too.

00:07:04: Still relevant.

00:07:05: Regulatory failures, sure.

00:07:07: Unresolved litigation, definitely.

00:07:09: And, crucially, unclear IP ownership.

00:07:12: If the buyer isn't sure you actually own the intellectual property you're selling, the deal just It really does.

00:07:26: AI is becoming central to deal strategy and diligence.

00:07:29: Per Blomfist noted that embedding AI right from the start, from deal inception, can seriously accelerate realizing those synergies.

00:07:37: And the way enterprise value itself is shifting.

00:07:40: That's a key point.

00:07:41: Teddy Romana-Casina used a great analogy.

00:07:43: You know, ISO, twenty seven zero zero one, that secures the vault, your data.

00:07:47: But the new global AI governance standard, ISO IEC forty two thousand one, that secures the algorithm.

00:07:54: And that's where more and more enterprise value actually resides now.

00:07:58: The intelligence, not just the data store.

00:08:00: That's a powerful way to put it.

00:08:02: But how real is that ISO.

00:08:04: forty two thousand one impact today?

00:08:05: Can a lack of that specific standard really knock ten twenty percent off evaluation right now?

00:08:10: Seems steep.

00:08:11: Well,

00:08:11: according to Ramana Casina, it can.

00:08:13: And the reason is inherited liability.

00:08:15: When due diligence flags, major A.I.

00:08:17: governance gaps, maybe bias algorithms, lack of transparency, buyers inherit risks they can't easily price.

00:08:22: Regulators are watching.

00:08:23: the space closely.

00:08:24: So that lack of a governance shield like forty two thousand one aims to provide, it introduces uncertainty and markets hate uncertainty.

00:08:32: That's where the potential valuation hit comes from.

00:08:34: It's becoming a real factor.

00:08:35: Okay, fair enough.

00:08:36: So if buyers are scrutinizing AI, what are the common mistakes they're making in diligence?

00:08:42: Are they getting dazzled by the height?

00:08:44: That's definitely one risk Pani Verifan highlighted.

00:08:47: Buyers sometimes lack the deep technical expertise to properly assess AI capabilities.

00:08:52: They might overpay for something that's frankly just a sophisticated rules engine, not true AI.

00:08:59: misjudging the tech itself.

00:09:00: What else?

00:09:01: They might also overlook genuine AI driven value creation opportunities.

00:09:06: Things like hyper personalized customer experiences or really intelligent process automation that could unlock significant value post acquisition.

00:09:16: Acquires need to demand solid proof of unique tech differentiation and crucially proprietary data.

00:09:22: That's how you separate the real AI advantage from the marketing fluff.

00:09:26: Got it.

00:09:27: Deep technical scrutiny is key.

00:09:28: Alright, theme four.

00:09:29: Integration, people, and value capture.

00:09:32: We hear it all the time, deals die in integration.

00:09:34: It's the classic M&A graveyard, isn't it?

00:09:36: Monokachan's observed that poor planning and those inevitable cultural clashes are often the silent killers of deal value.

00:09:42: So what do the winners do differently?

00:09:44: How do they navigate this?

00:09:45: It boils down to treating integration as a core discipline right from the beginning.

00:09:50: Thomas H. Kessler stressed this.

00:09:52: CEOs should run due diligence and integration as one single continuous process.

00:09:57: Unified leadership is key.

00:09:59: You can't just hand it off.

00:10:00: Every synergy you identify in diligence needs an owner, needs a plan, needs a measurable KPI for the integration phase.

00:10:07: It has to be seamless.

00:10:09: And what about managing the human element?

00:10:12: Things like misaligned incentives, especially with earnouts.

00:10:15: Ah, earnouts.

00:10:16: Eilish Shipley detailed this perfectly.

00:10:18: They're meant to align incentives, right?

00:10:21: But often they create massive friction.

00:10:23: The seller feels like the buyer takes away the tools, maybe budget, maybe key people needed to actually hit those earn-out targets post-close.

00:10:30: So that alignment on what winning looks like has to happen up front or it breeds resentment.

00:10:35: Makes sense.

00:10:36: And the overall negotiation tone matters too.

00:10:38: Fugely.

00:10:39: Lisa Martin emphasized avoiding that winner takes all mentality.

00:10:42: You need to preserve the relationship for integration to work.

00:10:45: You can't beat them up in negotiation and then expect full cooperation afterwards.

00:10:50: And Jeff Jones added that communication is critical.

00:10:53: Silence kills deals.

00:10:55: You build confidence through being responsive, being honest, even when the news isn't great.

00:11:00: Absolutely.

00:11:01: Then there's the operational side.

00:11:03: Srimoyee Dee pointed out that mastering post merger supply chain integration isn't just operational, it's strategic.

00:11:09: And get this, Matteo Mochi showed that procurement, if handled strategically, can unlock up to one-third of total M&A synergies.

00:11:17: Wow,

00:11:18: one-third from procurement alone?

00:11:19: That's massive.

00:11:20: It is.

00:11:21: But it requires focus and expertise, which brings us to talent.

00:11:25: Omar F. Guven advocated for more flexible talent models, using specialized freelancers, for instance, to scale deal teams quickly and efficiently.

00:11:33: It's kind of an evolution in managing deal capacity.

00:11:36: So before we wrap this up, let's leave you with a final thought, something pretty provocative that links, that announced deal value to what's actually realized.

00:11:43: We see these huge deal headlines, right, especially in biopharma, often featuring massive milestone payments way down the line, making the total value look enormous.

00:11:50: Yeah,

00:11:50: those multi-billion-dollar figures often hinge on future success.

00:11:54: Exactly.

00:11:55: But Vladimir Varshiv ran the numbers.

00:11:57: Historically, only about nineteen percent of those biopharma milestone payments are actually ever paid

00:12:03: out.

00:12:03: Wow, only nineteen percent.

00:12:05: Seriously, that completely reframes how you should look at those massive headline deal values.

00:12:12: It really

00:12:12: does.

00:12:12: It starkly highlights the gap between the announced value and the total realized value.

00:12:17: That's the crucial difference, isn't it?

00:12:19: The difference between just a great headline and, well, a great actual return.

00:12:23: A sobering but critical point.

00:12:26: Okay, that brings us to the end of this deep dive.

00:12:28: If you enjoyed this episode, new episodes drop every two weeks.

00:12:31: Also, check out our other editions on private equity, venture capital, and strategy and consulting.

00:12:35: Thank you for diving deep with us today.

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