An article on M&A strategies and trends by The Alta Group published in the March-April 2017 Monitor reports on the latest notable merger and acquisition transactions completed, the motivations, and strategies for success.
Executives interested in selling a company in 2016 were primarily motivated by a change in the strategic focus of parent companies, and independents want to sell companies while valuations remain relatively high, according to the authors, Bruce Kropschot and Jim Jackson, leaders of Alta’s M&A Practice, which is devoted to the equipment leasing and finance industry. See their list of notable deals.
They report conditions are favorable for 2017 to be another good year for mergers and acquisitions, noting the following favorable trends:
- Confidence is high
- Positive stock market reaction to new president
- New administration’s stated interest in reducing income taxes and regulations
- Continued interest by banks, private equity firms and leasing companies to diversify
- Increasing competition to acquire a limited number of available independent companies
To increase success for sellers their recommendations include:
- Prepare well in advance of proposed sale date
- Develop strong, experienced senior management teams
- Show stable, consistent yearly growth
- Demonstrate past and current portfolio performance
- Consider accepting an “earn out” structure as a portion of the sale proceeds
- Offer a differentiated product or service
While purchase price is a key factor in closing a deal, there are benefits a buyer can highlight:
- A lower cost of capital
- Ways to expand the business
- Relationships and resources to benefit the company for sale
- Likelihood of closing the transaction quickly and efficiently
- A method for a swift approval process
The authors provide M&A consulting to help clients create a well-developed plan. Paying necessary attention to both the buy-sell process and day-to-day business operations can be challenging for clients on both sides of a bargaining table. One of the most important factors beyond price is having a clear understanding of the cultural fit of merging companies. Advisors who are steeped in the asset finance industry can provide an educated, unbiased outside opinion.
They note the M&A market is cyclical, similar to the stock market. “In the 31 years we have been arranging the purchase and sale of equipment leasing companies, one of the best periods we have seen for M&A valuations is the current one, which started in 2013,” they said.
While Alta’s M&A advisors are optimistic, they noted that the equipment leasing and asset finance market could be vulnerable to unanticipated shocks. The complete article is available from the Monitor-March/April 2017 edition.