Best of LinkedIn: M&A Insights CW 45/ 46

00:00:00: Provided by Thomas Allgaier and Frennus, based on the most relevant posts on LinkedIn about M&A Insights and CW-FourFiveFourSix, Frennus is a B-to-B market research company supporting M&A consultancies with the market and competition perspective, for example, in commercial due diligence.

00:00:15: This edition is brought to you by our partner Dealeroom.

00:00:18: Help shape their state of M&A's twenty-twenty-six report by taking their survey.

00:00:22: This is your chance to share how you approach sourcing, diligence, and integration, and see how your experience compares to peers.

00:00:28: Find the link to the survey in the description.

00:00:32: Welcome to the deep dive.

00:00:34: Our mission today is pretty laser focused.

00:00:36: We're diving into all the intelligence shared across LinkedIn over the last two weeks or so.

00:00:40: The M&A insights that, you know, corporate development, private equity, VC, and consulting professionals really need to be acting on now.

00:00:47: We're just going to cut straight through the noise.

00:00:49: And it's necessary because the volume of material is just, it's dense.

00:00:53: We're seeing this, this critical blend of high level macro perdition.

00:00:58: Like is the market actually back?

00:00:59: Exactly.

00:01:01: That, right alongside these really tactical in-the-weeds execution details that, you know, determine whether a deal even survives the first eighteen months, we're here to connect those dots for you.

00:01:12: Okay,

00:01:12: let's start there.

00:01:13: Let's unpack that macro pulse first.

00:01:15: Is the deal environment actually shifting from, you know, that defensive crouch back to forward momentum?

00:01:22: The consensus is a pretty definitive yes.

00:01:24: I mean, top deal makers like Michael Simons and Mitch Berlin are signaling a clear positive outlook.

00:01:31: So it's not just

00:01:32: talk?

00:01:33: No, we're seeing actual expectations for a twenty twenty five M&A value rising and then projections for twenty twenty six volumes, especially mega deals to climb even further.

00:01:42: And

00:01:42: what's driving that?

00:01:43: Is it just pent up demand or are the underlying financial mechanics getting better?

00:01:48: It seems to be the latter.

00:01:49: Lower funding costs are starting to make the models work again.

00:01:52: which explains why cross-border M&A, and this was noted by Mikal Kants and Gabriel Huaz, actually hit a five-year high.

00:01:59: Five-year high, even with all the geopolitical stuff?

00:02:01: Yeah, despite all of that, it seems the pressure to deploy capital globally is just overcoming that perceived risk.

00:02:07: And that pressure, it isn't just generic, right?

00:02:09: It's being deployed with extreme precision into certain sectors.

00:02:14: We saw some pretty big surges recently.

00:02:15: Absolutely.

00:02:16: Take health care services.

00:02:18: Nathan Hempleman highlighted a massive five hundred and fifty percent surge in M&A deal value in just the first half of twenty

00:02:27: twenty

00:02:28: five.

00:02:28: Wow.

00:02:28: But the key strategic takeaway here is the shift in investor priority.

00:02:32: It's not just about chasing pure growth at any cost anymore.

00:02:36: It's about efficiency.

00:02:37: It's all about efficiency, passive productivity, and clear cash conversion.

00:02:41: That's where capital is going.

00:02:42: That focus on efficiency.

00:02:44: You can see it even in mature European markets.

00:02:47: Jackie Enneke pointed out that European banking M&A is being driven by the sector's, well, it's overcapitalization.

00:02:53: Right.

00:02:53: And specifically, the simplification of Basel III, that key regulatory framework, is unlocking a lot of capacity for these banks to consolidate.

00:03:01: So they're basically being forced to get leaner to target better return on equity.

00:03:04: Exactly.

00:03:05: And we're seeing similar platform plays in European telcos.

00:03:09: Dr.

00:03:09: Stephanie Wiegener detailed this.

00:03:11: M&A there is not just about domestic consolidation for scale.

00:03:15: It's more

00:03:16: strategic.

00:03:17: Much more.

00:03:17: It's about infrastructure-centric deals, like fiber carveouts or JVs.

00:03:22: And these adjacency moves into high-growth areas like cybersecurity.

00:03:26: They have to diversify.

00:03:27: And even in a booming sector like renewables, the risk profile is being tweaked.

00:03:32: Liam H noted a really crucial shift toward asset-level acquisitions.

00:03:36: OK, so why is that?

00:03:37: Well, institutional capital, it prefers buying ready-to-build or already operational.

00:03:42: assets, it just mitigates so much of that development and permitting risk.

00:03:46: So you

00:03:46: get a much clearer return profile from day one.

00:03:49: A much clearer profile, it's a safer bet.

00:03:51: It's also worth highlighting the dynamic in tech and AI.

00:03:55: Laurent Houserman reported a massive eighty three percent drop in U.S.

00:03:58: cybersecurity M&A deal value in Q to twenty twenty five.

00:04:03: Eighty

00:04:03: three percent, that suggests extreme caution.

00:04:06: It does.

00:04:07: And yet the financing deal count actually went up, which suggests that early stage investment is still really strong.

00:04:12: That feels like a contradiction, huge caution on the big deals, but still funding innovation.

00:04:19: How do we square that?

00:04:20: It could signal a kind of polarization.

00:04:23: The market is super cautious about overpaying for mid-market scale, but still highly interested in pre-integration innovation.

00:04:30: But then, Mike Previtt shared that the Google Wiz deal was approved by the DOJ, and that's being seen as a potential green light.

00:04:37: the floodgates opening for twenty twenty six

00:04:39: potentially.

00:04:40: yeah.

00:04:41: the market is waiting for these regulatory signals before it unleashes that next wave of mega deals.

00:04:46: that's a fascinating snapshot but you know speed and high valuations they don't matter if you drop the ball on execution

00:04:51: right

00:04:52: which brings us to integration.

00:04:54: Lars Ikenroth and Estela Jantokanova reminded us that what, seventy percent of M&A deals famously fail to deliver their expected value.

00:05:01: And if that value thesis collapses, it's almost always because of what was missed in cultural due diligence.

00:05:07: Hany Bader and Brian Ralph really stress that people in culture quality are decisive.

00:05:13: The numbers here are just, they're astounding.

00:05:17: They highlight a huge liability.

00:05:19: Ebony, Simone, Morton X shared that ninety-five percent of executives agree culture fit is critical.

00:05:25: Ninety-five percent.

00:05:26: But only

00:05:27: twenty-two point six percent actually perform cultural due diligence.

00:05:31: That gap, that ninety-five to twenty-two percent gap, it's basically M&A malpractice.

00:05:36: We spend months on balance sheets and legal clauses.

00:05:39: But we skip the one thing that causes seventy-five percent of key personnel to leave within three years.

00:05:44: Exactly.

00:05:44: It's catastrophic value destruction just walking out the door.

00:05:47: So if you do manage to on to your people, Steve Nunn offered three pretty straightforward approaches for boosting integration success.

00:05:55: Okay.

00:05:56: First, be prepared to over communicate.

00:05:57: You have to address those cultural misalignments.

00:05:59: Second, you have to balance priorities, deliver synergies, and keep the lights on.

00:06:02: Maintain business as usual.

00:06:04: And third, pace yourself.

00:06:05: He says speed without adequate resources just leads to chaos.

00:06:09: And we also need to recognize those external factors during integration.

00:06:12: Alexis Chevalier flagged inflation and macro volatility as huge distorting factors.

00:06:19: Right.

00:06:20: So your assumptions are out of date almost immediately.

00:06:21: They're obsolete.

00:06:23: Synergy assumptions, he argues, need to be recalibrated pretty much every ninety days to maintain any kind of deal resilience.

00:06:30: And you can't overlook that granular operational detail.

00:06:33: Paul Kohn gave a fantastic example of this.

00:06:36: Mapping the engineering change process during diligence led to finding a thirty-two million dollar penalty clause risk.

00:06:43: Wow.

00:06:44: A risk that was just completely missed by the financial and legal teams.

00:06:48: Completely.

00:06:48: Because they lacked that ground level operational perspective.

00:06:52: In that example, it just reinforces what Dwayne Weaking was saying.

00:06:55: Every single acquisition now is fundamentally a technology acquisition.

00:06:59: A tech acquisition, right?

00:07:00: Boards have to apply a digital transformation lens early.

00:07:03: Indiligence.

00:07:05: If the systems and data can't scale together, the value thesis just collapses no matter what price you paid.

00:07:10: Okay, let's shift gears completely.

00:07:12: Let's talk about the sell side.

00:07:14: For founders looking for an exit, there's a real dose of reality here, moving from the exit fantasy to exit engineering.

00:07:21: Mohana

00:07:22: Balani's data is the cold shower on that fantasy.

00:07:24: The reality is, ninety-six percent of M&A deals are valued below five hundred million.

00:07:30: And

00:07:30: most founders don't get a clean break.

00:07:32: Not at all.

00:07:33: The kicker is that seventy-three percent now include earn-out provisions.

00:07:38: That often locks founders in for over three years.

00:07:41: Signing isn't the end, it's just the beginning of the lockup.

00:07:43: Which means deal.

00:07:44: readiness is everything.

00:07:46: Luke Patzold and Brian Duke stressed this.

00:07:49: Buyers are just so wary of red flags.

00:07:51: Like what?

00:07:52: Fragmented data, shifting KPIs, operations that just feel like a black box.

00:07:57: Trust is built when the business makes its operations obvious.

00:08:00: I thought Allison Dent and Greg Head summarized the founder trap just perfectly.

00:08:05: So many profitable businesses failed to sell for one reason.

00:08:08: The founder is the business.

00:08:09: The founder is the rainmaker or the operational core.

00:08:13: Buyers are not paying for a job to inherit.

00:08:15: They want a replicable system that works without the founder's heroics.

00:08:19: So if your business depends only on your individual genius, you're the liability, not the asset.

00:08:25: Ouch.

00:08:26: But true.

00:08:26: And when you do find a buyer, that first negotiation is critical.

00:08:30: The letter of intent.

00:08:32: Cat lends in cautions against treating the LOI like a formality.

00:08:36: Right, because that's when the leverage quietly flips to the buyer.

00:08:39: Exactly.

00:08:40: Amad Al Khalil underscored the non-binding myth here.

00:08:44: I mean, the purchase price might be non-binding, but so many other key clauses are.

00:08:47: They

00:08:48: are legally binding.

00:08:49: Exclusivity, confidentiality, expense provisions, they all have to be scrutinized just as much as the final contract.

00:08:56: Mismanage the LOI and you could sink the deal.

00:08:59: And the risk assessment has to be quantitative.

00:09:01: Edward Lind provided a metric that is... Pretty sobering.

00:09:06: It does.

00:09:06: Losing just twenty percent of your revenue because of high customer concentration can drop your EBITDA by almost forty percent.

00:09:12: Forty

00:09:12: percent because of operating leverage and fixed costs.

00:09:15: Yep.

00:09:16: And buyers price that vulnerability in heavily.

00:09:19: And Scott Weevill and Mary Joyce remind us that even seemingly small things, weak churn metrics, poorly managed working capital, can stall or reprice a deal late in the game.

00:09:28: Okay, finally, let's talk about how deals are being engineered creatively when the traditional methods just fail.

00:09:40: over the headline price.

00:09:42: They'll pay a premium for an asset that closes a specific strategic gap for them.

00:09:46: Whether that's proprietary automation or regulatory moat.

00:09:49: Or even just embedded specialist talent.

00:09:52: And achieving that fit, it often requires some structural creativity.

00:09:56: Tom Dylan shared a great example of a deal that stalled because bank financing fell through.

00:10:00: And they saved it.

00:10:01: how?

00:10:01: They restructured the whole thing.

00:10:02: They used seller financing.

00:10:04: combined with performance-tied equity, it aligned everyone's incentives and just got the deal done.

00:10:09: And valuation itself, it's still a blend of science and, well, psychology.

00:10:15: Tullohaner Demi and Andre Wassmann emphasize that while models like DCF, they define a price range.

00:10:21: The final sticker price is often determined by market dynamics and pure necessity, like a PE fund that just has to deploy capital.

00:10:28: Or strategic buyer who absolutely needs the asset to keep their market share.

00:10:31: And we're also seeing innovative tools manage transaction risk now.

00:10:35: Bradley Glatt noted that reps and warranties insurance, RWI, it's no longer a luxury.

00:10:42: It's a crucial tool for shifting risk away from the negotiating table.

00:10:45: And

00:10:46: Prince Santani highlighted how IP-backed financing is starting to revolutionize capital access by leveraging intangible assets.

00:10:54: Which is where so much of the hidden deal value is today.

00:10:57: Right.

00:10:57: One last point on how acquirers are structuring themselves internally.

00:11:01: Umar F. Govind noted that corporate M&A teams are actually shrinking.

00:11:05: Cost pressures.

00:11:05: Exactly.

00:11:06: It's forcing leaner core teams.

00:11:08: And Peter Zinkseacher recommends that the best acquirers operate with an octopus-like deal committee distributing intelligence across the business units.

00:11:16: So, decentralized knowledge, but centralized authority.

00:11:19: Faster, more accurate decisions.

00:11:21: Yes,

00:11:21: the idea.

00:11:22: That need for speed and accuracy, it brings us to our final thought for you to carry forward.

00:11:26: This comes from Dirk Salmer's insight for founders.

00:11:29: If a potential buyer says, come back when X is done, that is almost always just a polite no.

00:11:34: Buyers with genuine strategic interest, they act with urgency.

00:11:39: So don't restructure your entire roadmap waiting for one lukewarm suitor to

00:11:44: maybe,

00:11:44: possibly, shift their strategy.

00:11:47: The principle there is really clear.

00:11:49: Focus on building a sustainable, ready to sell system that you can actually control, rather than tailoring your business for a single, uncertain exit.

00:11:57: That's a great principle to carry forward.

00:11:59: If you enjoyed this episode, new episodes drop every two weeks.

00:12:02: Also, check out our other editions on private equity, venture capital, and strategy and consulting.

00:12:06: Thanks for joining us on this deep dive into the M&A source material from CW-forty-five and forty-six.

00:12:12: Those insights on cultural diligence and founder readiness were particularly telling.

00:12:17: Subscribe and keep learning.

00:12:18: We'll see you next time.