Despite most Middle market firms performing well compared to their larger publicly traded compadres, Interest rates, inflation, and other global considerations are pressurizing M&A values.
The anecdote for business owners seeking to exit will be creating space between you and the rest of your competitors. Namely, growth will be central to achieving a sale in 2023. Those firms that stand out in customer attraction at profitable levels will give buyers confidence in your leadership capabilities and achieve an outlier outcome for their shareholders. (see our Outlier outcome series on a few ways to achieve an outlier outcome.)
The current M&A environment
Those that figure out how to ‘take share’ (market share) and create significant value will win in 2023. After the last few years either playing defense against covid and supply chain or, in the inverse, coming off a “covid-bump” revenue and profit growth, many firms are normalizing, yet facing a more challenging economy to grow.
Although counterintuitive to many, it’s now time to go back on the offense to achieve liquidity in an M&A event. How you plot a course to gain value and achieve exit velocity – the discipline and art of increasing revenue and earnings on the way to a partial or full liquidity event – especially during a “growth recession” is crucial to achieving your dream M&A outcome.
Even for those companies not seeking to exit or just getting started with exit planning, balancing a growth mentality while being smart with the bets you place and where you invest will serve you well in 2023.
We find three types of corporate leaders and entrepreneurs emerge during complex markets: Survivors, Reactors, and Accelerators.
Survivors – do just that; hang on and hope customers and businesses return while operating in the status quo.
Reactors – trial and error experimentation to maintain and gain share, management may or may not come back with the same core values and value proposition as pre-recession times.
Accelerators – those that proactively ideate and execute growth strategies or new service lines to attract coveted customer revenue and will achieve exit velocity and take share amidst market disruption.
If taking share sounds too predatory to you, perhaps deciding who you will be within your segment is the right step:
a.) Market Leader
b.) Market Neutral
c.) Market Laggard
Acquirers will assess your management capability by ranking you against your peers. A proactive growth mentality will be perceived much more favorably than prospective buyers ‘ wait-and-see approach.
Here are the practical steps to move forward and accelerate in 2023:
Step 1: Figure out which one you are at present. With your team, conduct a full assessment of your marketing, sales, and customer conversion acuity. Be brutally honest and focus on solutions to your observations. This should include what you will do and, equally important, what you will not do going forward—expressed differently, what resource allocations are not yielding growth and contributing to growth and profitability? Know yourself and set the benchmark of where you are now. Cut the unnecessary and non-ROI activities rigorously.
Step 2: Examine your competition, specifically their reactions and market moves. Are they adding or shedding people and plants, adding services, or contracting? Are they introducing new offerings in response to a changing marketplace? Run a SWOT (Strength, Weakness, Opportunity, and Threat) Analysis on your competitors, utilizing everyone in your company that knows the competition and the market. Use your salespeople and speak to your competitors, customers, and suppliers to attack weaknesses in your competition.
Step 3: Examine the critical functions, approaches, and offerings your customers most value with a “take share” philosophy. What one thing will you commit to, and where will you invest? How much investment is returning to your existing customer base vs. attracting new logos (new business)? Quickly probe enemy lines with teasers of your new offerings or service areas. These do not need to be bold, dramatic, or “bet the farm” moves. Small yet meaningful, focused efforts may be enough to take advantage of some disruption in supply markets. Test and re-test for adoption, and in this process, you will learn more of what your prospects want and need in 2023, as their businesses have likely changed.
This process would also be incomplete if you did not look at opportunistic buy-side acquisitions or look to acquire distressed companies as part of an inorganic growth strategy. Buy vs. re-build is a valid response given the COVID-19 market disruptions or oncoming recession to otherwise good companies. Weaker companies with good assets will exist in most markets.
Step 4: Communicate internally and externally: It will be critical that you communicate precisely which hill you are trying to take across all areas of your organization and why. Once that has been done, name and claim it with your customers. Chances are they will need to hear it several times to awaken to your offering.
Step 5: Execute flawlessly and tirelessly. The adage “execution eats strategy for breakfast” is true now more than ever when it comes to taking share and overcoming competition. Evaluating your offerings ensures your delivery teams are flawless in their execution.
Step 6: Keep score: If your plan is to position your company for growth or achieve exit velocity, a ‘take share’ mentality in 2023 is required. Buyers offer premium valuations to companies exhibiting an “up and to the right” growth trajectory, exhibiting a 10% CAGR (Compound Annual Growth Rate). Keep meticulous score, and rely on the numbers to make course corrections.
Private equity and other acquirers will surely ask, “what is your plan to achieve market-leading growth and how will that work position you to accelerate out of the recession?”.
While we understand no CEO could have anticipated the COVID-19 Pandemic and a recession on the heels of a covid recovery, those with an accelerator mindset and looking to “take share” will be closer to achieving a liquidity event than those waiting for their markets to recover fully.
To arrange a confidential call to discuss how JD Merit helps companies and their leaders take share and achieve exit velocity, please call Craig Dickens, CEO, @ 253-370-8893 or email Craig.Dickens@JDMerit.com
|As CEO of JD Merit, Craig Dickens is a cutting-edge visionary and a lead banker and principal investor—responsible for charting the firm’s course, creating a dynamic culture of personalized service, and recruiting highly qualified professionals to serve JDM’s national and international clientele. Craig and JDM’s reach and access to world-class buyers and capital partners are imperative in serving all JDM clients in pursuing outlier outcomes.Craig has advised many leading companies and participates in and chairs several middle-market company boards. Known for being a trailblazer, he sets an example for the JD Merit team by being an enthusiastic deal marketer, rigorous client advocate, strong negotiator, and creative deal maker. Craig serves JD Merit’s clients by skillfully guiding them toward a strategic path to rapid growth, true business value creation and optimization, and exceptional liquidity events and exits.As a successful entrepreneur, certified M&A advisor, investment banker, and angel investor, he has participated in virtually every business dynamic from start-up to IPO, merger to acquisition. Craig also serves on the management committee for CDI Global, JD Merit’s sister organization, for cross-border Mergers & Acquisitions represented in over 30 countries globally. JD Merit is a leading boutique investment bank focused on entrepreneurial middle-market companies. JD Merit executes sell-side M&A, buy-side M&A, capital advisory services, debt and equity capital raises, corporate finance, and valuation, services.|