We learned these 10 lessons from our 30 clients last year and believe they reflect the times:
1. Companies faring well and poorly are evaluating strategic alternatives
- We worked with 14 clients that came to us with questions about strategic alternatives, because either good results or poor results were causing them to re-evaluate their direction for the future.
- Eight were in the portfolios of VC investors and 6 owned by entrepreneur owner-managers (EOMs). 3 led to closed sales this year; 3 prudently declined. Industries included medical devices (4), software (3), hospitality/travel (2), ecommerce (1), real estate services (1), business services (1), healthcare IT (1) and cannabis (1).
- Publicly announced deals – Optii, PlumSlice, SuperFan
2. Leaders can find deal partners, but their organizations still need single-party deal support
- We find that the CEO can sometimes be the best person to find a deal partner and initiate the transaction, but follow-through requires support because the M&A project is time-consuming, risky and unfamiliar.
- This year, we worked with 6 companies where the leader had chosen the deal partner, and 4 such projects resulted in deals closed in 2021. Five companies were EOM companies and 1 was a nonprofit. Industries included manufacturing (1), utility services (2), healthcare (1), logistics tech (1) and real estate services (1).
- Publicly announced deals – Hospice of Chattanooga, Innovative Roofing Group, AAC Utility Partners
3. Nonprofits are growing by M&A, too, but they have unique considerations
- We are impressed by nonprofit leaders who use M&A to drive their mission and impact, and we are pleased to support such nontraditional transactions.
- This year, one past client asked us to develop an after-action review for an earlier deal that it had used endowment funds as the alternative to. Another that sold its operations and created, by winning at its first mission, the opportunity to conceive its new purpose and fund new work.
- Publicly announced deals – Eckerd Connects, Hospice of Chattanooga
4. Infrequent acquirers are evaluating opportunities to grow by acquisition
- Last year, we worked on 7 buy-side assignments for 6 clients that have not been regular acquirers of businesses. They learned that the process can be lengthy and competitive. Three are searching for a target still, 2 are under LOI, 1 bid and lost, and 1 closed 2 transactions. Industries represented included healthcare, fintech (2), financial services, business services (2) and manufacturing.
- Publicly announced deals – ICON Holdings/ICON, ICON/IAS
5. Complex and emotional situations benefit from experienced, steady help
- It’s not exceptional to see governance and management situations where feelings are hurt, patience is thin and emotionally-intelligent perspectives can help. And its not surprising that COVID years have got this in abundance.
- We helped 9 clients with various complicated situations where special attention to the complexities of the situation helped create resolution.
- In 2021, we worked with companies grappling with Board-level conflicts and Special Committee structures; overlapping ownership with the merger partner; overlapping business relationships with suitors; outsourcing, distribution or partnership arrangements that resembled traditional M&A (but were not exactly deals); enterprise value lower than debt; cash burning during the deal process; synergies much larger than the earnings of the selling company; and tough personalities and hard bargainers.
6. Investor communications are a crucial supporting skills for strategic transactions and investments
- Sometimes organizations have all the pieces of a strategic transaction together except that they are stumbling on messaging. Last year, we worked with 6 clients who were either experienced entrepreneurs that appreciate the value of content editors or technical founders with expertise in other parts of the business than attracting capital. Industries represented included medical devices (1), alternative energy (2), healthcare IT (2) and utility services (1).
- Their need was almost exclusively communications guidance, and this validated our teaming up with investor communications consultant Leah Williams last year.
7. Entrepreneur owner-manager deals can have a large real estate component
- In 5 client situations last year, real estate considerations were major deal factors. In one case, the treatment of real estate assets doubled the value of an acquisition offer.
- The importance of real estate in EOM deals validates our partnering with Commercial Property Consultants.
8. Women and minority entrepreneurs need accessible, attentive and experienced deal support, too
- More than 1/3 of our engagements in 2021 were with organizations led or owned by women or minorities. Our mission as a firm is to provide help to any business owners that need deal support and are not well served by traditional investment banks. We are pleased that one result is that we work with more diverse owners that the general population of entrepreneurs.
- Publicly announced deals – SuperFan, Optii, PlumSlice, ICON, Hospice of Chattanooga
9. Succession is a real driver of mergers and acquisitions, but it’s not everything
- In 2021, 12 assignments had some component of succession in them, from a client’s wanting to retire, to the target’s transaction being driven by succession, to the motivation being that a deal “hit my number.”
- This is a large percentage of the total, but not as much as people expect. Just as many clients were concerned about seizing opportunities to grow, and others were motivated by bleak outlooks for future growth that drove the need for change.
- None of our publicly announced deals could be considered straight succession transactions.
10. There is a need for transaction consulting services, distinct from “brokerage,” in the investment banking and professional communities in the Southeast
- Our firm’s role is to fill a gap in the professional community for high-quality transaction advice in deal situations that are too small, complex or uncertain in their outcome for the traditional investment banking industry to serve it well.
- The need for our approach gets validated when peers in the professional community refer business owners to us. Referrals drove 100% of our 30 client projects last year – one-third each from investment bankers, investors and the broader professional community (lawyers, wealth advisors, CPAs, peer networks).