Offering his perspective on the M&A market, and what it means for sellers, during this year's Boston Smart Business Dealmakers Conference, Bank of America Co-Head of Emerging Growth and Regional Coverage Brendan Hanley says there's close to $19 trillion of available capital, globally, $4 trillion of which is sitting with sponsors. Further, the average hold period now is 6.3 years and there's twice as much capital being deployed as sponsors are monetized.
"So, sponsors are under pressure," he says. "They're eager to invest."
Because of that, there are opportunities for those who are looking to sell. And getting the most out of a transaction requires work on behalf of the sellers. Two main issues to address are to understand the process and get to know the counterparties.
"Too often there is not a level of understanding or experience with the counterparties," Hanley says. "Many of the M&A situations that we're involved in, a client will tell us in less than 18 months that they want to sell. What process is going to be optimized in that short a period of time? It took 20 years to perfect the business, but yet we're trying to truncate the process of selling."
Something sellers must prepare themselves for is parting with a company they spent much of their life building. Because if they aren't, it's unlikely that they'll have a good process.
"There is there's an enormous amount of emotion, especially with family businesses, especially around succession — although succession is a major reason why companies catalyze the decision to sell," he says.
He says since the pandemic, owners are still expressing the shock of the event, the existential threat it presented to the company, the recognition that so much of the family's net worth is concentrated in one asset, and the fatigue that stems from it all. So, he says he's encouraging sellers to get to know many potential buyers to understand their potential valuations, as well as the cultural and social considerations that ultimately drive the union between buyer and seller.
One exercise that can help is for sellers to see their business as a buyer would by dispassionately stepping back and viewing the business as if the seller were buying their own company.
"The best processes take a great deal of perseverance and patience," Hanley says. "The best outcomes are oftentimes, when we look back, with families or founders or companies that we've been in dialogue with around a sale for three or four years. And there's an element of wealth management, and there's a personal element, there's certainly a significant organizational element."
He says the bar to go public is exceptionally high, and the vast majority of companies will not clear that. That's narrowing the options for many businesses.
"The private capital markets, the aperture of the types of companies they're looking for and the sectors is broadening," he says. "But they want the best in class — they're not interested in the second or third best in sector. So, many companies are now seeking a minority sale. And that's been an interesting evolution that we're seeing, which is companies who are not prepared to sell the company outright — the emotion, just the connectivity — but they want the liquidity, or they want to monetize a certain percentage of the value."
He says when private companies can dispassionately take a step back, they can find parties that can help them get to where they have otherwise been unable to get to. And then oftentimes that unlocks an outright sale at a much higher valuation.
