Best of LinkedIn: M&A Insights CW 47/ 48

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

00:00:01: This is provided by Thomas Allgaier and Frennus based on the most relevant posts on LinkedIn about M&A insights in calendar weeks, forty seven and forty eight.

00:00:09: And just so you know, Frennus is a B to B market research company.

00:00:13: They do great work supporting M&A consultancies with the market and competition perspective, for example, in commercial due diligence.

00:00:20: There are huge help in filtering the noise, which is exactly our mission today.

00:00:24: We're here to deliver concrete M&A insights that cut through the hundreds of posts out there, focusing on what really mattered in weeks forty-seven and forty-eight.

00:00:33: Exactly.

00:00:34: And the big theme, if you're watching the deal flow, is really one of, I'd say,

00:00:40: cautious confidence.

00:00:41: Deals are getting done, but the market is demanding incredibly rigorous underwriting.

00:00:47: The scrutiny is just intense.

00:00:50: We're seeing that pressure in specific places.

00:00:51: Oh,

00:00:52: absolutely.

00:00:52: Especially around things like cyber risk, the need for flexible deal structures, and that old challenge of operational integration.

00:01:00: So for you listening, whether you're an M&A pro, a private equity investor, or a consultant, we've clustered what we've seen into four big themes.

00:01:08: We'll

00:01:09: start with the macro market backdrop, then dive into the relentless demand for demerg diligence.

00:01:14: Then

00:01:15: we'll talk about value creation, the people and process side of things, and we'll finish up with a look at where the momentum is sector by sector.

00:01:23: Let's jump in.

00:01:24: Starting with that macro environment, because really the cost of capital is still the number one pressure point.

00:01:30: It's unavoidable.

00:01:31: It is.

00:01:32: Mary Joyce published a really clear reminder about the inverse correlation between interest rates and M&A volume.

00:01:38: Right,

00:01:38: when rates are high.

00:01:39: activity gets suppressed.

00:01:41: Especially for any deal that relies on leverage, you just can't hide behind financial engineering anymore.

00:01:46: Which forces a kind of brutal honesty in the investment thesis, doesn't it?

00:01:49: Precisely.

00:01:50: You have to show up with a much stronger thesis with really disciplined cash flow math just to get the numbers to pencil out.

00:01:56: And that pressure, when it hits the public markets, it creates volatility.

00:02:01: Yeah, and volatility means companies need to think about defense.

00:02:05: Frank Kula and Catherine Yew were talking about this, the resurgence of hostile M&A activity.

00:02:10: So boards need to be ready.

00:02:11: They

00:02:12: need to be more than ready.

00:02:13: Heightened defense readiness, stakeholder coordination.

00:02:17: It can't be an afterthought.

00:02:18: It's a real signal that some players think assets are undervalued.

00:02:22: And on top of that, you have geopolitical risk.

00:02:25: That's the other layer.

00:02:27: Bobby Bray's analysis made it clear that national security reviews aren't the exception anymore.

00:02:32: They're standard procedure.

00:02:34: And not just in obviously sensitive sectors.

00:02:36: No,

00:02:36: it's broader now.

00:02:37: It hits.

00:02:38: valuations, timelines, even how you plan your integration if the target has assets or tech in certain jurisdictions.

00:02:45: So with all this pressure high rates, volatility, regulatory hurdles, it seems like the old execution model is breaking down.

00:02:51: It

00:02:51: is.

00:02:51: Which is why Kitson Patel's advocacy for what he calls buyer-led M&A is so interesting.

00:02:57: Explain that a bit.

00:02:58: It sounds like a shift in mindset.

00:03:00: It's a huge shift.

00:03:01: M&A was often... you know, a reactive game.

00:03:04: The seller sets the pace.

00:03:06: Patel is saying the buyer needs to be proactive from day

00:03:10: one.

00:03:10: But doesn't that risk deal leakage?

00:03:13: or just overwhelming the target.

00:03:15: That's the tension, isn't it?

00:03:16: But the argument is that this approach actually leads to faster decisions and a higher certainty of close.

00:03:21: Because you're leading with intent.

00:03:22: Exactly.

00:03:23: The buyer has to define their value thesis way earlier, which loops right back to that disciplined cash flow math we started

00:03:31: with.

00:03:31: Okay, so if the macro environment is the pressure cooker, due diligence is where you see the cracks.

00:03:37: That's a great way to put it.

00:03:38: An incomplete diligence is still just a massive value killer, especially in asset heavy industries.

00:03:44: Numbers

00:03:44: are pretty stark, aren't they?

00:03:46: They're shocking.

00:03:47: David Salim shared a data point from the resources sector that should honestly make every dealmaker just pause.

00:03:52: Okay.

00:03:53: Inadequate due diligence leads to eighty-five percent of M&A deals in that sector failing to reach their potential value.

00:04:00: Eighty-five percent.

00:04:01: That's...

00:04:03: that's almost a given that you'll fail if you don't do the groundwork.

00:04:06: It's a staggering failure rate, and he frames diligence as giving you three things, knowledge, control, and protection.

00:04:14: And that protection piece is increasingly about regulatory exposure, right?

00:04:18: Absolutely.

00:04:19: This is where cyber comes roaring in.

00:04:21: Amy Wilson was very clear on this.

00:04:23: You have to get privacy and cyber governance locked down on day one.

00:04:27: This

00:04:27: isn't theoretical risk.

00:04:29: Not at all.

00:04:30: She cited the Australian clinical labs case.

00:04:32: They inherited system risks, had a breach right after the deal closed.

00:04:36: And got hit with a penalty.

00:04:37: A

00:04:37: five point eight million dollar penalty.

00:04:39: It just shows the immediate cost of overlooking the target cyber posture.

00:04:44: And managing that risk itself can create bottlenecks.

00:04:47: Jeff Jones made a great point that deal.

00:04:49: bottlenecks are usually about coordination, not complexity.

00:04:52: Right.

00:04:52: It's the administrative drag.

00:04:54: It just kills momentum.

00:04:55: And that lack of coordination.

00:04:57: It

00:04:57: links directly to what Tuluhan or Demi warned about engaging too many non-exclusive advisors.

00:05:02: It just creates chaos.

00:05:03: You lose credibility with a buyer.

00:05:04: And the deal falls apart.

00:05:05: Exactly.

00:05:06: It looks messy and uncoordinated to the seller.

00:05:09: So shifting gears a bit to valuation.

00:05:12: We're seeing a premium on data, it seems.

00:05:15: A

00:05:15: huge premium.

00:05:16: Warren Horowitz noted that targets with a really robust analytics infrastructure are commanding higher multiples.

00:05:23: Because it derisks the whole process.

00:05:24: It derisks everything.

00:05:26: The underwriting, the integration plan, good data just reduces uncertainty, and in this market, that's

00:05:32: gold.

00:05:33: And because uncertainty is so high, deal structures have to be more flexible.

00:05:37: They have to be.

00:05:38: Eva Davis shared some great insights on using what she called tariff earnouts to bridge regulatory uncertainty and cross-border deals.

00:05:46: So you don't fall into that.

00:05:47: time kills all deals trap while waiting for policy clarity.

00:05:51: That's the idea.

00:05:52: And it's becoming the new normal.

00:05:53: We saw some European SME data from Floyd Plettenberg that confirmed it.

00:05:58: More

00:05:58: than numbers.

00:05:59: Earnouts are in thirty nine percent of deferred price deals and vendor loans are in thirty four percent.

00:06:04: It just shows that risk sharing is now expected.

00:06:07: And that rigor goes all the way down to the accounting details.

00:06:09: Oh,

00:06:10: you have to be precise.

00:06:11: Scott Weevill gave a sharp warning about the non-gap AR trap.

00:06:14: Okay, what's that?

00:06:15: It's when your target uses cash or modified gap accounting.

00:06:18: If your working capital definitions in the deal documents aren't extremely precise, you can get hit with six-figure surprises post-close.

00:06:26: It's a tactical but really dangerous blind spot.

00:06:29: It's clear that the diligence phase is demanding more detail than ever.

00:06:33: But that leads to the big question we always come back to.

00:06:37: Why do so many deals still fail?

00:06:39: It's the perennial question, isn't it?

00:06:41: And Jim McWay reminds us that failure rate is stubbornly stuck, still around seventy percent.

00:06:45: Seventy percent.

00:06:46: It's just incredible that the number hasn't moved.

00:06:49: His take is that the blame lies in a lack of focus on the how, the actual execution.

00:06:55: He says playbooks are built in isolation from operational reality.

00:06:58: They look great on paper.

00:06:59: But

00:06:59: they don't survive first contact with the actual business.

00:07:02: Not

00:07:02: at all.

00:07:03: And if that's the problem, Frederick DeVue argues success is all about preparation.

00:07:07: He says you have to confirm three things.

00:07:08: Okay, what are they?

00:07:09: One, map the true operational reality.

00:07:12: Two, confirm the acquirer is actually ready to absorb the new entity.

00:07:17: And three, and this is key assigned named owners with real bandwidth.

00:07:21: That last one is huge.

00:07:22: integration can't be a side project.

00:07:25: If it's on top of someone's day job, you're planning to fail.

00:07:28: And digging deeper, Vandana are stressed that most M&A deals fail because of people, not the numbers.

00:07:36: Culture is a strategic risk.

00:07:38: It absolutely is.

00:07:39: And you need to do behavioral due diligence.

00:07:41: You have to treat leadership compatibility and communication style with the same seriousness as a financial audit.

00:07:47: Because

00:07:47: organizations don't merge, people do.

00:07:49: Exactly.

00:07:50: And Paul Cohn had a great framework for this.

00:07:52: He talked about the gap between claimed system maturity and actual people maturity.

00:07:57: What does that look like?

00:07:58: A company might claim they're at, say, level four capability, but their people actually operate at level two.

00:08:05: They follow the procedure, but they escalate every single exception.

00:08:09: And that gap gets exposed under the stress of integration.

00:08:12: Immediately.

00:08:13: PE firms especially need to assess the resilience of that capability.

00:08:17: So you need discipline from the start.

00:08:18: Yeah.

00:08:19: Daniel Friedman emphasized that early synergy planning is crucial for aligning leadership.

00:08:25: It provides that clarity and momentum right after closing.

00:08:28: But discipline also means knowing when to stop.

00:08:30: Ah, the zombie work streams.

00:08:32: Alexis Chevalier's term.

00:08:34: And it's perfect.

00:08:35: Those initiatives that just consume resources and your best people, but should have been shut down quarters ago, you have to protect your focus.

00:08:44: OK, let's wrap up with a look at where the capital is actually flowing.

00:08:47: What's the sector and geographic momentum look like?

00:08:50: Jonathan Boyers described it perfectly as a two-speed M&A market.

00:08:54: Meaning.

00:08:55: Tech-enabled services, the modern digital businesses, are really active in getting strong valuations.

00:09:01: Meanwhile, the older-style economy businesses are much more sluggish.

00:09:04: We're seeing that tech investment in specific places.

00:09:07: We are.

00:09:08: Look at AECOM buying the AI real estate agent, Consigli, for its AECOM Ventures arm.

00:09:13: That's a three hundred and ninety million dollar deal.

00:09:16: Man,

00:09:16: it's not just a tech play.

00:09:17: It's about embedding AI into their core workflows.

00:09:20: That's right.

00:09:20: And you see consolidation logic elsewhere too.

00:09:23: The WSP Jacobs merger which Emma Steele noted is all about getting scale and end-to-end delivery in engineering and environmental services.

00:09:30: And health care is another hot spot.

00:09:32: Definitely.

00:09:32: Sean Janus noted activity was up seven percent in Q three with over five hundred deals.

00:09:38: And there are structural drivers there.

00:09:39: Right.

00:09:39: Huge ones.

00:09:40: Alan VanderBart tied biotech M&A directly to the twenty twenty eight twenty thirty patent cliff.

00:09:47: It's creating a big push for targets with late stage assets.

00:09:51: We even saw some massive bets being placed.

00:09:53: A

00:09:53: huge one.

00:09:54: Christopher Kumar highlighted Abbott's twenty one billion dollar acquisition of exact sciences.

00:10:00: That's a transformational bet on precision oncology.

00:10:03: And what about geographically?

00:10:04: Are we seeing any new hubs emerge?

00:10:07: We are.

00:10:07: David Hill pointed to the Asia-Pacific region using what he calls transformational M&A interconnected deals to really reposition strategically.

00:10:15: And in Europe.

00:10:16: Johann Erberg mentioned Sweden is still very strong, but her Wixpringer showed that Barcelona is really emerging as a hub for founder-led tech companies.

00:10:24: They're

00:10:24: attracting who?

00:10:25: A lot of appetite from US and DACH corporates.

00:10:28: And finally, on the private side, Philip Herman noted that the focus is still defensive.

00:10:32: So,

00:10:32: recession-resistant sectors.

00:10:34: Exactly.

00:10:35: Healthcare, utilities, and a big focus on ad-orn acquisitions rather than huge platform deals.

00:10:41: Okay, so if we synthesize all of that, it feels like the theme is rigor.

00:10:46: Wigger across the entire deal lifecycle.

00:10:48: That's it.

00:10:49: From day zero cyber planning to flexible structures like tariff renounce right through to disciplined operationally grounded integration.

00:10:57: The market is demanding that granular operational clarity just as much as a good strategic story.

00:11:02: Absolutely.

00:11:03: The age of deals working just through financial engineering, that's over.

00:11:07: You have to deliver value through operational certainty.

00:11:10: That's

00:11:10: a fantastic takeaway.

00:11:11: Now, if you enjoyed this deep dive, new episodes drop every two weeks.

00:11:15: And you should also check out our other editions on private equity, venture capital, and strategy and consulting.

00:11:20: And we want to leave you with a final thought to chew on.

00:11:23: It builds on Lachlan Houston's critique that financial modeling often feels like a bet because it lacks probabilities.

00:11:29: Right.

00:11:29: So given that stubborn, seventy percent M&A failure rate that Jim McWay highlighted, I'll ask you this.

00:11:35: How often is your firm actually modeling the probability of integration success?

00:11:40: The how?

00:11:41: And not just the best case energy number.

00:11:42: Is your diligence truly deep enough to avoid becoming part of that seventy percent?