Best of LinkedIn: M&A Insights CW 43/ 44

00:00:00: We

00:00:00: are diving deep into the strategic movements shaping M&A right now, drawing exclusively from the most relevant posts on LinkedIn during calendar weeks forty-three and forty-four.

00:00:09: This comprehensive analysis is provided by Thomas Allgaier and Frennis, a BW market research firm specializing in supporting M&A consultancies with critical market and competition perspective for things like commercial due diligence.

00:00:23: Welcome to the deep dive.

00:00:25: Our mission today is pretty simple.

00:00:27: Cut through all the noise online.

00:00:29: you know, and really deliver the strategic nuggets that genuinely shifted deal execution these past few weeks.

00:00:34: Yeah,

00:00:34: exactly.

00:00:35: We're looking at where the money's going, what deal structures are actually working, and maybe why so many deals seem to run into trouble after closing.

00:00:42: That's the plan.

00:00:43: And rather than just like a dry list of facts, we've clustered the key insights, makes it easier to digest, I think.

00:00:49: Good idea.

00:00:50: So first, we'll hit market activity where our deal makers putting their chips.

00:00:54: And second, got to talk about valuation, that persistent gap, and some really creative structuring we saw.

00:00:58: Always a hot topic.

00:01:00: Always.

00:01:00: And finally, the crucial non-financial stuff.

00:01:04: Strategy, people, process readiness.

00:01:08: You know, the things that really decide if a deal succeeds or fails.

00:01:11: Okay, let's jump right into theme.

00:01:13: one them.

00:01:13: Market activity.

00:01:14: If you want to see where things are headed, you watch the big deals, right?

00:01:18: What were the standout, strategic moves these weeks?

00:01:21: Anything signal a real shift?

00:01:23: Well, the night acquisition of experiential supply, that definitely turned heads.

00:01:27: Right.

00:01:27: Chris Irwin pointed out the strategic thinking behind it.

00:01:31: Night, they manage these huge digital creators, right?

00:01:34: Your Mr.

00:01:35: Beast types.

00:01:36: Right.

00:01:36: Experts and viral content.

00:01:38: Okay

00:01:38: an experiential supply.

00:01:39: They're all about live event production.

00:01:41: So putting those two together.

00:01:43: Okay digital reach meets physical experience.

00:01:46: Why is that so powerful

00:01:47: now?

00:01:48: Because audiences are kind of saturated online.

00:01:50: They're craving real world, you know offline engagement makes sense.

00:01:54: So this merger it creates this full stack thing takes Knights digital mastery and plugs it straight into physical events.

00:02:00: They're targeting that massive like a hundred billion dollar plus creator and events market recognizing that the next big thing is turning digital fans into, well, actual attendees.

00:02:10: It's a really smart synergy play.

00:02:11: Yeah,

00:02:12: that leap from online buzz to actually getting people to show up, I see it.

00:02:16: We also saw some big moves just for scale, didn't we?

00:02:20: Particularly in professional service.

00:02:21: Oh,

00:02:21: absolutely.

00:02:22: The RSM UK and RSM US LOP merger, that's pushing them towards what, five billion dollars combined revenue?

00:02:29: Huge

00:02:29: number.

00:02:30: Yeah.

00:02:31: And James Gosling noted, It really highlights the power of the partnership model for scaling globally in that sector, accountancy, consulting.

00:02:39: It's a way to get massive growth without, say, bringing in private equity.

00:02:43: Interesting contrast.

00:02:44: Now, zooming out a bit, the global outlook seems, well, mixed.

00:02:48: I read mixed,

00:02:48: yeah.

00:02:48: You've got the US side, the EY Parthenon deal barometer people like Gregory Docko, Miles Avilevich highlighting it, showing momentum building.

00:02:56: They're forecasting deal volumes over a hundred million dollars up like nine percent into twenty twenty five.

00:03:02: Sounds pretty optimistic.

00:03:04: It does.

00:03:05: But then you look across the pond to Europe and it's a totally different story.

00:03:07: How so?

00:03:08: Kai Hezzelman observed Germany is basically a buyer's market right now.

00:03:11: Yeah, valuations are lower, sellers are under pressure, succession issues, needing capital, that kind of thing, which actually creates opportunities for disciplined buyers.

00:03:22: People willing to move when others are hesitant.

00:03:25: Anticyclical.

00:03:26: Exactly.

00:03:27: Anticyclical place.

00:03:28: So you're seeing this real divergence.

00:03:29: Depends heavily on where you are and the local macro pressures.

00:03:33: Okay.

00:03:33: So within these markets, where are we seeing specific sector activity?

00:03:38: Any hot spots?

00:03:39: Energy and clean tech are definitely active.

00:03:42: You saw a tariff and group quarrying on that wind asset.

00:03:45: Cecibert Futor for more, second.

00:03:47: Shows continued appetite for infrastructure.

00:03:49: Green assets.

00:03:50: Still strong demand there.

00:03:51: But maybe the most disruptive signal.

00:03:55: came from tech, AI specifically.

00:03:57: Yeah, this AI started Rogo, they just raised fifty million dollars.

00:04:00: Fifty

00:04:01: million?

00:04:01: Wow, what's Rogo doing?

00:04:03: They're building what they call a digital analyst, basically AI to help emanate teams and banks automate processes.

00:04:08: Well, of course, with cans of deals.

00:04:09: And this is key, they're focusing on the SME succession market.

00:04:12: Ah,

00:04:12: interesting news, why is that worth fifty million?

00:04:15: Well, think about it, the SME market, especially succession deals, It's huge, volume-wise, but often really fragmented, complex, high-touch.

00:04:24: Right.

00:04:25: Lots of manual work.

00:04:26: Exactly.

00:04:27: So, automating parts of the diligence there, like Kai Hesselman suggested Rogo was doing, tackles that complexity, makes it potentially faster, cheaper to assess those smaller deals, could be a game changer for that segment.

00:04:39: And that idea of automating assessment leads us nicely into theme two.

00:04:43: We've talked about where deals are happening.

00:04:45: Now let's talk about how they're getting priced.

00:04:47: Okay.

00:04:48: And the big persistent issue, maybe even getting worse, is the valuation gap.

00:04:52: Right.

00:04:52: We hear about this constantly.

00:04:54: Jeffrey Brewster's research puts some numbers on it.

00:04:56: Yeah.

00:04:56: He confirmed gaps of twenty to forty percent are pretty standard now in the middle market.

00:05:01: Twenty

00:05:01: to forty percent.

00:05:02: That's massive.

00:05:03: What's driving that?

00:05:04: Well, Brewster argues the core issue.

00:05:06: is buyers sticking rigidly to these standardized EBITDA multiples.

00:05:11: You know, one size fits all.

00:05:12: And that misses the unique value.

00:05:14: Totally.

00:05:15: It fails to capture the real differentiators.

00:05:18: Not just, you know, good management.

00:05:20: We're talking proprietary systems, maybe a custom built software, really strong recurring revenue streams, intangible assets that are hard to replicate.

00:05:29: Stuff that doesn't fit neatly into a standard formula.

00:05:32: Exactly.

00:05:33: So the message for say CPAs advising owners, or the owners themselves, is that first fair offer based on comps.

00:05:41: It likely leaves a huge chunk of your real value, maybe, twenty-forty percent just sitting there.

00:05:47: Uh-huh.

00:05:47: Because you haven't properly quantified your secret sauce.

00:05:51: Which

00:05:51: makes you question the models themselves, doesn't it?

00:05:53: Liz Welfalkendorf had some thoughts on this.

00:05:55: She did.

00:05:55: A really useful prospectus.

00:05:56: She said, look, DCFs, comps, precedent transactions, they're valuable tools great for structured thinking.

00:06:02: Yeah.

00:06:02: They're just maps.

00:06:03: Maps.

00:06:04: Yeah, maps of if, then, scenarios.

00:06:05: They're not guarantees, not problems.

00:06:07: Well, there's any testing.

00:06:08: Robustly tested against reality.

00:06:10: Like, sellers might understate maintenance capex to make current profits look better, right?

00:06:14: Neglecting necessary upkeep.

00:06:16: Classic move.

00:06:17: Or the big one.

00:06:19: Terminal value dominance.

00:06:21: For anyone listening who isn't deep in DCF's daily terminal value, is the theoretical value way out into the future.

00:06:28: Perpetuity.

00:06:28: And it often makes up most of the calculated value.

00:06:30: Often, eighty percent or more.

00:06:32: So if your guess about long-term growth forever is just slightly off, poof, the whole valuation can fall apart.

00:06:38: The sensitivity is huge.

00:06:39: That's kind of scary.

00:06:40: So because of all this uncertainty in these gaps, are we seeing more creative deal structures to bridge the divide?

00:06:48: Absolutely.

00:06:48: People are getting really inventive to manage risk.

00:06:51: That lemeless clap deal Dirk Sommer wrote about.

00:06:54: Okay.

00:06:54: Textbook example.

00:06:55: Okay, break that one down.

00:06:56: What was so clever?

00:06:56: Well,

00:06:57: it was a twenty-five million dollar total price, but look how they split it.

00:07:00: Only five million dollars was actual cash up front.

00:07:02: Pretty

00:07:03: low for that size deal.

00:07:04: Right.

00:07:04: Then five million dollars was a vendor loan, basically, the seller financing part of the deal.

00:07:08: Another two million dollars in convertible bonds, which gives the seller potential upside later if things go well.

00:07:14: Okay, so spreading the risk and reward.

00:07:16: Exactly.

00:07:17: But the real, uh, the kicker was the earn out.

00:07:19: Fifteen million dollars tied to some seriously aggressive growth targets.

00:07:23: Fifteen million.

00:07:24: That's more than half the deal value.

00:07:26: Yep.

00:07:26: Clab had to go from two million dollar ARR to ten million dollar ARR in just three years.

00:07:32: Huge pressure on performance post acquisition.

00:07:34: Wow.

00:07:35: That aligns incentives, but doesn't that kind of structure often lead to arguments later on?

00:07:40: It definitely can.

00:07:42: It keeps the seller highly motivated, sure.

00:07:44: But it also means the buyer takes on much less upfront financial risk.

00:07:48: It's a balancing act.

00:07:49: Financially smart, but operationally challenging, maybe.

00:07:53: And even when sellers think they've locked in a good price, there are other ways value leaks out, right?

00:07:58: Adam Johannen mentioned buy-side lawyers getting creative.

00:08:01: Oh, yeah.

00:08:01: He pointed out how they strategically redefine upfront cash.

00:08:05: They'll push hard for things like indemnification holdbacks or working capital adjustments after the headline price is agreed.

00:08:11: Meaning the cash the seller actually gets on day one is less than they thought.

00:08:15: Precisely.

00:08:16: The seller loses leverage on that final payout amount.

00:08:19: The actual realized cash price can end up quite a bit lower than what was initially shaken

00:08:24: on.

00:08:24: So it really underscores needing sharp advisors on the structuring side, not just the valuation.

00:08:30: Absolutely critical to protect that final value for the seller.

00:08:33: Okay, let's shift gears to the third theme.

00:08:35: Execution.

00:08:37: Strategy integration people.

00:08:39: This is often where deals unravel, right?

00:08:41: The post-closing phase.

00:08:42: Yeah,

00:08:42: the stats are pretty grim.

00:08:43: Peter Zink's feature from M&A Formula highlighted some shocking numbers.

00:08:47: What were they?

00:08:48: Something like sixty to seventy percent of transactions are ultimately regretted by the acquirer.

00:08:53: Regretted

00:08:54: ouch.

00:08:55: And even worse, maybe up to ninety percent never actually create the expected shareholder value.

00:09:01: Makes me wonder why people do M&A if the odds are that bad.

00:09:04: Seriously.

00:09:04: So what separates the successes from the failures?

00:09:08: Luck.

00:09:09: Not luck, Courtney Teeter.

00:09:10: It hinges on M&A complementarity.

00:09:13: But a big reason for failure, interestingly, is often poor measurement, not just bad strategy.

00:09:17: Measurement?

00:09:18: How so?

00:09:19: Alexis Chivalier made a strong case for using economic value-added EVA during post-merger integration.

00:09:24: It's about going beyond just looking at profit.

00:09:27: Okay, can you give us the quick definition of EVA?

00:09:29: What does it track?

00:09:30: Sure.

00:09:30: Think of it like this.

00:09:32: Profit just tells you if you made money.

00:09:35: EVA tells you if you made enough money to cover the cost of all the capital you tied up to buy and run that business.

00:09:41: So did the deal actually earn its keep financially speaking?

00:09:44: Exactly.

00:09:45: Did the combined business truly earn its cost of capital?

00:09:48: If the answer is no, you might show accounting profit, but you're actually destroying economic value.

00:09:54: It's a much more rigorous way to judge real success after the deal.

00:09:58: That makes sense.

00:09:59: A higher bar.

00:10:00: Now, beyond the numbers, the human element is massive, isn't

00:10:03: it?

00:10:03: Oh, absolutely critical.

00:10:04: Paul Joyce emphasized integration leadership quality.

00:10:07: He talked about strategic alignment, having credibility across functions, and just disciplined execution.

00:10:12: And he called that the pivot point.

00:10:14: Yeah, the absolute pivot point between value creation and, well, value destruction.

00:10:19: If the leadership team responsible for integration isn't aligned, credible, and focused, the deal just stalls or goes sideways.

00:10:26: And that

00:10:26: ties into what Dylan Roberts was saying about a People First M&A approach.

00:10:30: Precisely.

00:10:31: And he stressed, this isn't just, you know, soft HR stuff.

00:10:34: It means digging into culture and talent alignment way earlier, like during due diligence.

00:10:39: Before you close.

00:10:41: Because you're buying people and their ways of working, not just assets on a spreadsheet.

00:10:45: Exactly.

00:10:46: You need to know if they'll fit with key talent will stay.

00:10:50: That has to be part of the assessment from day one.

00:10:52: We also need to touch on a common strategic mistake.

00:10:55: Just focusing on cost cutting, post deal.

00:10:58: Right.

00:10:59: Andrew Vonsen made a great point about this.

00:11:01: He said, slashing costs only buys you time.

00:11:04: It doesn't build long term value on its own.

00:11:06: So the savings are good, but temporary.

00:11:09: Yeah, you get that initial cash benefit, which is nice.

00:11:12: But the real strategic move is to take those savings and reinvest them.

00:11:15: Reinvest where?

00:11:16: Into transformation.

00:11:18: Funding new tech implementation.

00:11:20: Maybe hiring better talent needed for the next phase.

00:11:22: Pushing into new markets aggressively.

00:11:24: Cutting just stabilizes things.

00:11:26: Investing is what transforms the business.

00:11:27: Okay, good distinction.

00:11:28: So wrapping this theme up, let's think about founders who want a successful exit.

00:11:33: What's the playbook?

00:11:34: Pramod Gosavi's Advice was super clear.

00:11:38: Absolute focus.

00:11:39: Focus on what?

00:11:40: On building a great product, building a great team, and securing a strong market position.

00:11:46: Acquirers pay the big premiums for that powerful combination.

00:11:49: Great product, strong brand recognition, solid team.

00:11:53: Focus relentlessly on those three.

00:11:55: And start early.

00:11:56: Way early.

00:11:57: Luke Pate's old hammered this home.

00:11:59: M&A Prep isn't a last minute scramble.

00:12:02: It starts six to twenty four months before you even think about selling.

00:12:05: Getting your house in order, as they

00:12:06: say.

00:12:07: Exactly.

00:12:08: Clean financials, documented processes, a crystal clear story about where the value comes from.

00:12:12: He said, if you can't nail your company's value proposition in like, ninety seconds.

00:12:17: You lose credibility.

00:12:18: You lose credibility, you lose leverage, and you open yourself up to getting reprised downwards during diligence.

00:12:24: Preparation is everything.

00:12:25: OK, so this deep dive has really shown, I think, a market facing different pressures, depending on why you look.

00:12:31: US optimism versus a buyer's market in Europe.

00:12:33: We're seeing smart plays into hybrid models, like that night experiential deal.

00:12:37: And valuation remains tough.

00:12:40: Pushing creativity in deal structures to bridge that gap.

00:12:43: And maybe most importantly, the focus on nonfinancials using metrics like EVA, really prioritizing people and integration leadership.

00:12:51: that seems crucial for actual success.

00:12:54: Yeah, what really stands out is this intense demand for structure for predictability and what feels like a pretty chaotic market.

00:13:00: overall making operational readiness and human factors core to the deal thesis isn't like a nice to have anymore.

00:13:08: It seems essential.

00:13:09: Which, you know, it raises a really interesting question for you, our listener, to maybe chew on.

00:13:14: With AI tools like Rogo starting to automate deal origination and parts of diligence, how is that going to fundamentally change things next cycle?

00:13:22: Like, will the speed AI offers start to trump the depth of traditional due diligence?

00:13:26: What does that mean for competitive tension?

00:13:28: Something to think about.

00:13:29: Definitely something to watch.

00:13:30: If you enjoyed this deep dive, new episodes drop every two weeks.

00:13:34: Also check out our other editions where we focus on private equity, venture capital, and strategy and consulting.

00:13:39: Thank you for tuning in and make sure to subscribe for more strategic deep dives.