INSIGHT: Four Indicators the M&A Window Is Closing and Tips to Take Advantage

Offit Kurman M&A Attorney, Mike Mercurio Featured in Bloomberg Law

Originally Published by Bloomberg Law 

July 16, 2019 | Maple Lawn, Maryland Mergers and acquisitions in the Mid-Atlantic area appear to be slowing down, and human behavior patterns can be why. Offit Kurman attorney Michael Mercurio takes a look at reasons for the pause and offers best practices for businesses considering a merger and taking advantage of this period.

For many mergers and acquisitions teams in the Mid-Atlantic, 2018 was a meteoric year. From consultancies to investment banks to law firms, numerous organizations active in the region set new records in terms of transactions closed and successful representation of buyers and sellers.

After all that, however, the market appears to be slowing down. Transactional opportunities still abound, but fewer are coming to fruition. Deals are taking longer to consummate and parties seem increasingly hesitant to commit.

This is hardly a surprising turn of events. The M&A market, like the larger U.S. and world economies, is cyclical by nature—and the two cycles are connected. M&A frequently reflects (and sometimes predicts) global economic upswings and downturns. A rapid rise and fall in M&A could foreshadow the potential recession many financial analysts are forecasting.

Changed Behavioral Patterns

What is driving the change in the market? The answer, as with all economic trends, is human behavior. Here are a few behavioral patterns I have witnessed among buyers and sellers lately.

1. Heightened expectations among sellers. Nearly everyone involved in business transactions has been aiming for better-than-average results. This includes buyers and sellers, but I have seen it more frequently among the latter party. During one transaction in which my team was involved on the buy side, the seller had an unreasonable understanding of the value of his business and its associated risks. When he discovered that our client did not share his viewpoint, the deal fell through.
2. General inflexibility. In more than a few recent transactions, negotiators on all sides of the table have been less than willing to reach a compromise. Again, inflated expectations are sometimes to blame, but other emotionally-charged factors—such as impatience and negligence—can aggravate the issue as well. In one would-be deal, our team found serious employment issues at the target company, but the seller would not agree to a change in terms based upon our team’s request for indemnification and hold back.
3. An increased emphasis among buyers on quantifiable value. Buyers are considering their pricing more deliberately, and business owners haven’t caught up. Too many sellers believe they can set the terms of the deal and reach a clean, direct agreement without much effort. One of our sell-side clients learned that this isn’t the case when the buyer dinged them twice on the company’s less-than-stellar EBITDA number (which continued to drop).
4. Burnout. M&A is a long and grueling process. Regardless of deal size, buyers and sellers need to steel themselves for a challenging, stressful, and exhausting road ahead. I suspect some people hoping to make a deal in the current environment haven’t considered how onerous it would be in any environment. It’s important to anticipate and prepare for hardships. Otherwise, expect breakdowns in communication and feelings of resentment. During a recent negotiation, for instance, the prospective buyer asked our client to reduce the purchase price—without providing a reason why. This sort of antagonism, which shouldn’t be present in any deal, underscores the difficulty of M&A—and the necessity of a good advisory team.

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ABOUT MIKE MERCURIO

Mike Mercurio | mmercurio@offitkurman.com | 301-575-0332 | Biz Tek Today

Michael N. Mercurio is a leading attorney in the field of mergers and acquisitions (M&A). He serves as outside general counsel in buy-side and sell-side M&A, as well as in all business law and real estate law matters. As a strategic partner to firm clients, Mr. Mercurio regularly counsels entrepreneurial individuals and assorted entities on the many challenges, issues, and opportunities companies face throughout the business lifecycle—from start-up to eventual exit.