Best of LinkedIn: M&A Insights CW 51 - 02

00:00:00: Provided by Thomas Allgaier and Frenas, based on the most relevant posts on LinkedIn about M&A Insights from CW one to two.

00:00:07: Frenis is a B to B market research company supporting M&A consultancies with the market and competition perspective.

00:00:13: For example, in commercial due diligence.

00:00:15: And with that, welcome to the deep dive.

00:00:18: Today, we are really digging into the mindset of the M&A world.

00:00:21: We're looking at the close of twenty twenty five and the very start of twenty twenty six.

00:00:25: Our mission is pretty laser focused.

00:00:28: We're analyzing the conversation happening right now on LinkedIn for all of you in PE, venture capital, M&A advisory and consulting.

00:00:35: basically pulled together the most important nuggets from top practitioners.

00:00:39: And what's immediately clear from all these posts is this.

00:00:43: This distinct shift toward pragmatism.

00:00:45: Right.

00:00:45: The consensus isn't about chasing splashy mega deals, not right now.

00:00:49: Instead, the whole conversation is about execution quality, discipline valuation, and I think crucially, defending value after the deal is signed.

00:00:57: Yeah, it feels like it's a year where rigor just matters more than risk.

00:01:00: And that rigor, it seems to break down into three core clusters we need to unpack.

00:01:05: First, there's a human element, deal execution and integration discipline.

00:01:09: Second, the technical side, valuation, structuring and financial rigor.

00:01:14: And finally, the massive and frankly accelerating impact of technology, specifically AI and tooling in M&A.

00:01:22: And if you connect all those dots, the bigger picture is that a successful deal outcome.

00:01:29: It depends less on getting that perfect spreadsheet model at the start.

00:01:32: Okay.

00:01:33: It hinges entirely on operationalizing the transaction, on managing people through what is, you know, inevitable friction and leveraging technology strategically.

00:01:43: The battleground has sort of moved from the boardroom right into the integration team.

00:01:46: I like that.

00:01:46: So, okay, let's unpack this.

00:01:48: Let's start right there with the discipline of execution and integration.

00:01:51: That really is the human side of value, isn't it?

00:01:53: Because it feels like that's where most deals fall apart.

00:01:56: That's the cold hard truth we saw across these posts.

00:01:59: I mean, post merger integration is what defines value yet.

00:02:03: That off-sided statistic which Clint C. Kendrick reminded the community of is just

00:02:08: brutal.

00:02:09: It's the big one.

00:02:10: Seventy to ninety percent of M&A deals still fail to meet their original investment thesis.

00:02:15: That number is just startlingly consistent.

00:02:17: Is that, I mean, is that statistic still accurate?

00:02:20: or are we just getting better at measuring value destruction?

00:02:24: It suggests the problem starts way before the hank is dry.

00:02:27: It has to.

00:02:28: As Kisan Patel reminds us, the deal isn't over when you sign the papers, it ends when you deliver the value.

00:02:34: And that value creation happens squarely in integration.

00:02:36: And the root cause isn't financial, it's behavioral.

00:02:40: Simone Viscato argues this so compellingly.

00:02:42: Culture isn't a soft topic, it is a measurable value driver.

00:02:46: Why though?

00:02:47: How do you measure it?

00:02:48: Because

00:02:48: collective behavior is what drives execution.

00:02:51: And execution.

00:02:52: Well, that's what drives ROI.

00:02:54: If you can't manage the cultural friction, you simply can't execute the synergy plan.

00:02:58: It's that direct.

00:02:59: And that friction is intense.

00:03:02: Maxwell Salazar notes that mergers and acquisitions is a pretty clean corporate euphemism for a process that's far more brutal.

00:03:11: He points to these common friction points that just sink deals, overlapping leadership mandates, private resistance from legacy execs, and that forced often unwelcome shift from, you know, founder speed to the disciplined cadence of PE ownership.

00:03:27: Those are things that DCF model just cannot foresee and dealing with that requires advanced proactive leadership, not just, you know, HR management.

00:03:36: Thomas H. Kessler suggests that constructive disagreement is actually key to preventing costly errors,

00:03:41: especially in those integration committees.

00:03:43: Exactly.

00:03:43: The trick is building trust quickly.

00:03:45: He recommends leaders start with genuine curiosity, acknowledge the other person's view first, and then reconnect on the shared goal.

00:03:51: That process builds trust and trust.

00:03:54: Well, that's what gives you speed.

00:03:55: So what stands out to you is the most actionable warning sign.

00:03:58: The thing a leader should be looking for during integration.

00:04:01: For me, it was Steve Nunn's detailed breakdown of the communication changes that signal trouble.

00:04:06: He gave three specific signs.

00:04:08: First, a reluctance to report status in meetings.

00:04:11: That silo effect starts to creep in.

00:04:13: Okay.

00:04:14: Second, an increase in break room conversations.

00:04:17: That signals anxiety, a lack of psychological safety, a lack of trust in the formal channels.

00:04:22: Right, the rumor mill starts churning.

00:04:24: Exactly.

00:04:25: And third, inconsistent feedback from the newly acquired employees.

00:04:30: If you see those things, you have an execution problem brewing under the surface.

00:04:34: That's fantastic practical insight, but that discipline, it also has to be designed upfront, right?

00:04:39: Especially with cost synergies.

00:04:41: We see so many deals where the first move is just ruthless cost cutting.

00:04:45: Oh, absolutely.

00:04:46: And that's a trap.

00:04:47: Andrew Vincent warned specifically about span of control optimization.

00:04:51: The classic lever.

00:04:51: It's the common lever, right?

00:04:53: Yeah.

00:04:53: Reduce manager account, increase direct reports.

00:04:55: It looks great on a spreadsheet, but push it too far and you risk overextended managers, reduce coaching, and massive morale erosion.

00:05:02: And the worst part is the delay, isn't it?

00:05:04: You book the savings immediately, but the damage, the lower performance, the lack of management development, that only shows up six, twelve, eighteen months down the road.

00:05:13: By

00:05:13: which point reversing it is nearly impossible without significant cost.

00:05:17: You have to be surgical with that lever.

00:05:19: The operational side feeds directly into the financial reality.

00:05:23: Which brings us perfectly to our second theme, valuation, structuring, and financial rigor.

00:05:30: Because all this execution rigor is only as good as the numbers driving it.

00:05:33: And this is where it gets really complex.

00:05:35: Well, it's interesting because the conversation around valuation, it isn't just about technical models anymore.

00:05:40: Marcus McGurion basically throws conventional wisdom out the window.

00:05:44: How so?

00:05:45: He argues that valuation is fundamentally a political outcome.

00:05:49: It's shaped as much by incentives.

00:05:51: psychology and the, you know, the invisible power dynamics inside the buyer's organization as it is by EBITDA.

00:05:57: So you mean if the buyer's internal M&A champion has their bonus tied to the deal closing, they might push the valuation harder than pure analysis would suggest, that kind of political shaping?

00:06:08: Precisely.

00:06:09: It creates internal pressure that can completely skew discipline.

00:06:13: And that ties directly back to what Allison Dent was saying about sell side credibility.

00:06:17: Ah, dressing up the bride.

00:06:19: Right.

00:06:19: But she clarifies, It isn't about hiding messy numbers.

00:06:23: It's about preparation, positioning, framing risks, honestly, presenting a clear, credible growth story.

00:06:30: Buyers, she says, arrive with microscopes.

00:06:33: That prep has to withstand the scrutiny.

00:06:35: And that microscope focuses pretty intensely on financial diligence.

00:06:40: Rajiv Kaitan cautions founders against what he calls EBITDA magic.

00:06:45: I love that term.

00:06:46: It's

00:06:46: great.

00:06:46: It means pushing for unreasonable, you know, non-recurrent or theoretical adbacks.

00:06:51: And it's so damaging because it risks killing the buyer's trust entirely.

00:06:54: It can actually lower the valuation, even if you close.

00:06:57: Buyers want credible adbacks that show the business can actually run post-sale, not just a theoretical savings list.

00:07:03: Credibility is the current... Absolutely.

00:07:06: And moving to structure, Aaron Pinnegar covered the really vital nuances of purchase price allocation in asset deals for tax planning.

00:07:13: It's highly technical, but so essential.

00:07:15: but he issued a critical warning that rollover equity might inadvertently limit your amortization deductions because of anti-churning rules, even when you get a basis step up.

00:07:26: Whoa, that sounds like a massive tax risk for the buyer, one that could totally change the deal economics.

00:07:32: For those of us who aren't tax specialists, can you just quickly break down what Pinnaker is warning about there?

00:07:37: Sure.

00:07:37: So a basis step up.

00:07:38: lets a buyer write up the value of the assets they just bought and then amortize that new higher value over time.

00:07:45: huge tax benefit.

00:07:47: But anti-churning rules exist to stop a seller from getting a tax benefit on an asset they sort of still own through their rollover equity.

00:07:55: If those rules apply, the buyer loses a huge chunk of those amortization deductions, and that lost future tax shield can be worth millions.

00:08:03: The technical risk is profound, and rollover equity is everywhere right now.

00:08:08: It Taberbee Benedict notes that something like sixty to sixty-five percent of sub-one hundred million dollar deals include a seller equity rollover.

00:08:15: Typically between ten and forty percent.

00:08:17: Yeah.

00:08:17: And while that structure is great for aligning incentives and lowering the buyers upfront cash, the seller needs to be incredibly careful.

00:08:25: What are the risks?

00:08:26: You're facing very real risks.

00:08:28: Primarily, minority stake status, total illiquidity until the next exit, and a potential loss of control.

00:08:35: You have to be fully aware of the risk profile you're taking on.

00:08:38: And when you zoom out to the macro level, especially cross-border deals, the complexity just explodes.

00:08:45: Michael Seminy detailed all these non-standard things you have to scrutinize.

00:08:48: Like what?

00:08:49: Things like local laws that restrict data disclosure, hidden intergroup assets, or even these obscure change of control triggers buried in financing documents and foreign jurisdictions.

00:08:59: Local expertise isn't a bonus, it's a necessity.

00:09:03: You can't afford those blind spots.

00:09:04: And finally, underpinning the whole financial case, you have synergies.

00:09:08: Derminders saying stresses that revenue synergies, which are often the core strategic driver, they are notoriously the hardest to realize.

00:09:16: It all circles back to theme one.

00:09:18: It does.

00:09:19: He advocates treating human capital as a core synergy driver from day one, not a post-close people problem.

00:09:26: That's how you actually enhance performance and capture those revenue gains.

00:09:29: That connection is key.

00:09:30: The synergy spreadsheet is just useless without the human and execution discipline.

00:09:35: Okay, let's shift to our final theme.

00:09:37: The acceleration driven by technology, AI, and tooling.

00:09:41: If rigor and execution are the foundation, AI is definitely... the excel in it.

00:09:46: Absolutely.

00:09:47: Karina Kahl has highlighted a key finding here.

00:09:49: The M&A market is fundamentally shifting its focus from volume to velocity.

00:09:54: AI is the engine driving that speed.

00:09:56: The impact on diligence is, I mean, it's immediate and transformative.

00:10:00: Keystone Patel gave a great operational example using deal room.

00:10:03: Yes, I saw that.

00:10:04: Their AI document organizer provides instant data room structure.

00:10:07: But more importantly, the AI document intelligence can extract key terms, obligations, and risks immediately.

00:10:14: You don't wait weeks for a junior associate to read ten thousand contracts.

00:10:18: The AI surfaces the high-risk stuff instantly.

00:10:21: And Scott Taylor echoes this on the very front end.

00:10:23: on sourcing.

00:10:25: AI flips deal sourcing from these broad filters to highly targeted outreach.

00:10:30: Firms are now using proprietary tools to analyze operating signals.

00:10:33: What

00:10:33: kind of signals?

00:10:34: Things like changes in employee count, facility size, customer concentration patterns, and they use that to score targets against the buyer's exact investment thesis.

00:10:44: it just leads to higher probability, more focused conversations.

00:10:48: And this precision is driving a real market premium.

00:10:51: Greg Head reports seeing AI-driven companies achieving two to three times higher valuations than their peers.

00:10:56: Just for the AI capability.

00:10:58: Exactly, just for the capability and the efficiency gains that come with it.

00:11:01: Kaladizar confirmed this trend.

00:11:04: He noted, twenty twenty five was a record year for sauce M&A, specifically driven by enterprise demand for AI enabled platforms.

00:11:11: We saw some really aggressive buying massive deals from players who want to own the infrastructure.

00:11:16: Speaking of aggressive, Jason Salisman provided a deep dive into service now.

00:11:20: They deployed over twelve billion dollars across seven acquisitions in twenty twenty five.

00:11:25: Their goal is crystal clear.

00:11:27: They want to own the control layer for enterprise AI.

00:11:31: and they often use an invest-then-acquire playbook from their own venture portfolio to lock up strategic assets early.

00:11:38: And that kind of strategic buying creates urgency everywhere else.

00:11:42: Bram Vrugdon Hill warns that the window for early investment in payments AI is narrowing really fast.

00:11:49: All the activity is concentrated in SEED and Series A rounds.

00:11:52: which signals strong investor confidence, but also

00:11:55: sharply rising future acquisition costs.

00:11:57: for anyone who waits.

00:11:59: Payments players are realizing that building complex AI internally is just too slow to keep pace,

00:12:03: which brings up the classic buy versus build dilemma now just supercharged by AI.

00:12:08: Alice McCracken made a great point that if your internal product teams can build faster using these new AI tools, it raises the bar for M&A.

00:12:15: Right, the justification gets harder.

00:12:17: If your internal team can get you eighty percent of what a startup offers in half the time, it makes paying a three x valuation premium for that last twenty percent pretty much untenable.

00:12:26: And that's why we're seeing so many firms finding valuations too expensive pursuing partnerships or licensing deals instead of full acquisitions.

00:12:34: Makes sense.

00:12:34: So if we summarize the key trends for you the market right now is rewarding clarity execution and technological superiority.

00:12:44: Whether you look at the discipline strategy of Wreck-It Bankies, which Peter Sink set your detailed,

00:12:49: consistently creating value through calculated takeovers,

00:12:52: or the aggressive AI scale-up of service.

00:12:55: Now, the focus is on rigorous application of strategy.

00:12:59: It's not based on hope.

00:13:01: So what does this all mean for you in the M&A space?

00:13:03: I think the clearest takeaway is that success now relies on combining that financial rigor, the complex structuring issues Aaron Pinnaker and Rajiv Khattan highlighted, with deep operational discipline, which Dharmendra Singh championed.

00:13:15: And the AI.

00:13:16: And the strategic adoption of AI across every single work stream.

00:13:21: You have to treat your deal strategy as a complete end-to-end execution pipeline.

00:13:25: It's diligence, it's people, it's technology.

00:13:28: It's not just a negotiation to be won.

00:13:30: which raises a really important final question, I think.

00:13:34: Especially for anyone involved in international deals.

00:13:37: Given that cross-border M&A is getting exponentially more complex, like Michael Seminy showed, and regulators are scrutinizing deals for geopolitical exposure and national security risks, how might you proactively bake that kind of regulatory and geopolitical foresight into your early diligence process to generate a real competitive edge in the year ahead?

00:13:58: That is definitely something to chew on.

00:14:00: If you enjoyed this deep dive, new episodes drop every two weeks.

00:14:03: Also check out our other editions on private equity, venture capital, and strategy and consulting.

00:14:07: Thank you for joining us for this deep dive.

00:14:09: Don't forget to subscribe.