Know These Trends Before Buying or Selling a Company

A recent study of private acquisitions between 2012 and 2015 revealed some interesting trends of acquisitions and mergers of middle-market companies.

GettyImages-147205360-compressorThe 2016 SRS Acquiom M&S Deal Terms Study analyzed data from 735 private acquisitions (valued at $137 billion) that closed between 2012 and 2015, in which Acquiom provided professional and financial services. Mary Josephs, Founder & CEO of Verit Advisors, a middle-market investment banking firm, told that while the results “aren’t shocking”, they provide valuable information on trends. “Checking in on M&A activity is one of the crucial ways founders/owners/CEOs can prepare for an exit—and make adjustments to maximize outcomes that may be years away,” said Joseph.

“Checking in on M&A activity is one of the crucial ways founders/owners/CEOs can prepare for an exit—and make adjustments to maximize outcomes that may be years away.”

Here are some of the key findings from the report:

  • The median time from the founding of a firm to being acquired is on the rise and increased to nine years in 2015, compared to eight years in 2013 and seven years in 2012.
  • The median amount of equity capital invested remained flat at nearly $24 million, yet the median number of equity financing rounds decreased from three to two between 2012 and 2015.
  • The number of employee retention plans, also known as management carveout plans, are on the decline, but their value is on the rise. While 89% of such deals had management carve-out plans in 2013, only 65% of deals did in 2015. Yet the median carve-out plan as a percentage of transaction value is back up to 10%, from a 5-year low of 6.8% in 2014.
  • Half of all deals now include conflict waivers, which allow the seller’s law firm to represent the seller’s former shareholder post-closing.

The data also revealed that deals are being made less in cash and more in a cash/stock combo. While 85% of the deals were cash in 2012, only 75% of deals were cash in 2015. During that time, long-term real interest rates also moved from .22% to .81%.

In terms of transaction values, 23% of the deals were worth $25 million or less, 39% of the deals were worth $25 million to $100 million and 37% of the deals were worth more than $100 million. More than half of the buyers were U.S. public companies.

Mergers & Acquisitions recently reported that mid-market M&A dropped again in April. Based on selected components of the Mergers & Acquisitions’ Mid-Market M&A Conditions Index, leads for new transactions dropped and letters of intent remained flat. While there was an increase in completed deals, volume of closed mid-market transactions decreased in April. Availability of financing, which hit a record low in February, rose in April, indicating a loosening of credit.

In addition, a survey of 600 mid-market business leaders by Citizens Bank revealed that 60% of respondents said they are looking to do transformative deals in 2016 to help jump-start revenues, an increase from 40% in 2015, according to CNBC.


  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events