Food Distribution M&A Update – November 2023
October 18, 2023Articles | Feb 14, 2024
Do Mergers and Acquisitions Create Value?
Mergers and Acquisitions Create Value for Both the Seller and the Buyer.
To craft a comprehensive and practical response from the seller's standpoint, and to offer advice on generating and optimizing value in an M&A deal, let's begin by delineating value into two distinct components.
Quantitative Value:
In the realm of mergers and acquisitions (M&A), quantitative value primarily pertains to the fair-market value of the selling company. This aspect is solidified during the final stages of the M&A process, involving negotiations where both parties and their legal teams resolve pricing discrepancies, contractual matters, and potential liabilities. Clearly articulating your financial objectives to your M&A advisory team early on can facilitate the creation of genuine value from the transaction, ultimately achieving the desired net proceeds for post-closure financial security.
Qualitative Value:
In many instances, formulating an exit strategy through M&A can be a decision driven not only by financial considerations but also emotional ones, particularly in the case of family-owned businesses or companies with a familial culture. Qualitative value encompasses intangible transactional objectives, which may include:
- Enhancing work-life balance
- Planning for retirement
- Ensuring the continuity of the business by identifying a successor
- Safeguarding against increased competition within the sector or industry
Assessing qualitative value creation in an M&A transaction is inherently subjective and often underestimated during the initial planning phases of the deal. Conducting a thorough assessment of your ultimate goals, whether they are financial, strategic, or a blend of both, can serve as an essential first step in determining the value that M&A could bring to your company.
Finding a Buyer Aligned with Your Objectives:
Understanding the various types of buyers in the market is crucial in bridging a company's end goals with the realization of a suitable M&A transaction. In essence, a strategic buyer evaluates target companies within a similar or related industry to foster growth, while a financial buyer seeks to acquire a company as an investment with the expectation of a favorable return. Both types of buyers perceive the target company as contributing value to their respective objectives.
M&A Advisory Involvement
Assessing the potential value that M&A can bring to your company should not be done in isolation. It is highly recommended to consult with an advisor who has industry experience, as they will be invaluable in optimizing both the quantitative and qualitative aspects of your transaction.
To initiate this process, here are some commonly asked questions addressed by ESF Equity, LP.
FAQ’s
If I'm uncertain about whether M&A is the right path for my company, can I still consult with an advisor?
Absolutely. It's advisable to initiate discussions early on, even if you're unsure about pursuing M&A. Our M&A Advisory teams can provide guidance, and the process of maximizing value from a transaction typically begins years before entering the market.
How can I ensure both quantitative and qualitative aspects of an M&A deal are optimized?
At ESF Equity, LP, our M&A Advisory teams work to align both parties' interests and ensure a mutually beneficial agreement. We focus on maximizing market value and addressing post-close considerations through our comprehensive and tailored solutions, leveraging our deep sector expertise.
What can I expect from ESF Equity, LP as my M&A Advisory team?
Upon request, we can facilitate introductions with our past clients, allowing you to hear firsthand about their experiences. To connect with an expert and continue the conversation, feel free to reach out to us for advice.