The M&A market remains active as companies seek to capitalize on a productive environment to search for opportunities to scale operations, add capabilities and increase market penetration. Pursuing M&A activities, though, requires a wide variety of considerations, from financing options and rising valuations, to supply chains and company culture.
A comprehensive due diligence process is needed to determine if a target company is a right fit. Businesses must think critically about their unique criteria for a potential M&A target and what strategic objectives will be supported through expansion.
Potential acquirers should consider the supply, customer and employee bases of a target company.
A buyer also needs to examine its own ability to prioritize resources to support a merger or acquisition, especially when time and capital are temporarily limited while the deal is being completed and returns have not yet been realized.
With many companies coming off strong years, valuations have spiked, and buyers face an inherent risk of overpaying for M&A.
Before committing to a deal, buyers should recognize that a target company’s peak performance is unlikely to continue indefinitely. If a buyer is willing to complete a deal at a target’s peak cash flow valuation, they must be confident in research that shows the valuation is fair and performance can be sustained.
Once a buyer is ready to act, it needs to decide the best way to finance the deal.
There is excess capital and an influx of private equity in the market, and many businesses find themselves with additional cash at their disposal. While interest rates have begun to climb from their previously historic lows, there remains a range of viable financing options.
Engaging finance partners early in the process can help determine an appropriate offer price as well as capital and credit strategies. To find the right financing solution, buyers should work with their lender to consider:
It is to the buyer’s benefit to work with a partner they know and trust as they navigate the financing process. This is especially true during times of uncertainty, when a knowledgeable advisor can assist in assessing the impact of geopolitical events, such as the evolving situation in Europe, economic trends and other factors.
Risk analysis and management is part of any transaction. FNB has solutions to protect your company’s interests, including Representations and Warranties Insurance (RWI) coverage for M&A deals. Learn more about RWI in the Manage Risk section of the Business Knowledge Center at fnb-online.com.
