Developing a Successful Acquisition Strategy - Recap By Vanessa Tabler, Drinker Biddle & Reath LLP


What Does It Take to Succeed in Acquisitions Today?

The M& A market can be described in a single word, "competitive." Now more than ever, investors and lenders alike are hustling to find deals and realize value. So how exactly does one strategize in today’s M&A market?

Meet our Experts

- Adam Cohn, Triumph Group
- Peter Dahms, Oxford Finance LLC
- Sean Gallagher, Janney Montgomery Scott
- Kyle Squillario, Susquehanna Private Capital
- Frank Tait, Frontline Education

Then & Now …

There are noticeably more private equity firms in the market today than five years ago, resulting in a fiercely “competitive process” As more companies with fifty-million dollars in sales hire investment bankers compared to five years ago, investors have to be consistently creative in determining where and how to source transactions, according to Cohn.

  • Skills of management are increasingly more important in determining whether a deal is feasible to an investor. Investors want CEOs and CFOs to proficiently perform their day to day duties, and excel at sourcing and closing M&A transactions. This type of diligence was not a major qualifier five years ago; today it is essential, commented Squillario.
  • The supply of capital increased “exponentially” over the last several years and, concurrently, deal terms are becoming more aggressive and sophisticated compared to five years ago, stated Dahms.
  • To remain competitive, lenders are permitting a higher percentage of synergies and other adjustments (up to 25%) to be added back to EBITDA in mid-market transactions compared to five years ago when such “Adjusted EBITDA” was seen only in top-tier transactions. 

Keys to Success …

To identify potential companies, strategic investors and private equity investors alike are increasingly using a targeted approach.

  • Building relationships with potential targets two to three years before a transaction is on the table is a critical component, said Tait.  Maintenance of those relationships is also critical. Cohn’s team utilizes a database to monitor targets for potential transactions and maintains relationships with the leadership.
  • Focusing on segments where growth is desired or where gaps exist in their portfolios or businesses is an approach used by both Squillario and Tait. After a target is identified, investors begin their assessment, including but not limited to:
    • Financials
    • Synergies
    • Strategic fit / Cultural fit (from strategic investor’s view)
    • Leadership’s skills and its reputation with its customers; and the
    • Likelihood of a transaction down the road.
  • Adjusting models to adapt to the evolving M&A market.  For example, Triumph, which had been operating as a “decentralized operating company,” with numerous disparate companies in its portfolio, is undergoing a multi-year restructuring to create a more “cohesive operating company” that focuses on three key business segments, said Cohn.  This strategy involves consolidating companies within the portfolio and divesting investments that do not fit with the core business segments.
  • Planning integration has become key – both before and after an acquisition.  Frontline starts integration planning as early as when the LOI is signed according to Tait. One of the progressively more important metrics utilized by investors in integration planning is the percentage of synergy realization.  According to Dahms, lenders expect to see synergies realized within 12 months post-closing, which requires careful analysis of post-closing financial performance to determine if an investment is meeting expectations.

Biggest Hurdles …

  • Lack of financial sophistication of sellers. Sellers should strongly consider hiring advisory experts to assist with the transaction and ensure more certainty to close.
  • Adhering to the integration plan.  “Extracting synergies” from a target is a key goal, noted Squillario. And investors are better suited to realize synergies when they stick to their integration and strategic plans. Moreover, lenders want to see that the plans are being followed too.
  • Disagreement on valuation. When founders and investors disagree on valuation of the target it can result in the transaction not moving ahead.

Lightening Round …

What’s the one thing that helps you the most in an acquisition?

  • Good attorneys that do M&A for a living
  • Good data
  • Motivated sellers
  • All of the above