Over the last several years one of the most accurate predictors of M&A deal volume has come from Intralinks. Intralinks is a leading financial technology provider of software and services, including virtual data rooms (VDRs), for the global banking, dealmaking, private equity and capital markets communities.
The Intralinks Deal Flow Predictor (DFP) forecasts the volume of future M&A announcements by tracking early-stage M&A activity – sell-side M&A transactions across the world that are being prepared or have entered the due diligence stage. These early-stage deals are, on average, six months away from a public announcement.
Published quarterly, the Intralinks DFP has proven to be a reliable predictor of pending M&A activity. The fact that their data is based purely on the level of activity in their VDRs makes it a highly reliable indicator of future deal activity.
We have used it for years and found it to be highly accurate. Based on their latest update, they expect an overall slowdown in global deal making, but a 5% increase in deal volume in the U.S. for the first six months of 2019.
Use the following link to review their entire 2nd quarter forecast:
Can You Capitalize on Increased M&A Volume?
This is great news for “buyer ready” businesses. What constitutes a buyer ready business? In general, a buyer ready business is one where the owner has taken steps to address the following common issues:
Far too many business owners that we meet at our exit planning conferences are not aware that focusing on these three strategic areas can have a significantly positive impact on the value and sale-ability of their businesses.
Why do these factors matter?
Because buyers loath risk. When they calculate the value of a business, they typically use a discounted cash flow model (DCF).
Basically, through a DCF model they look at the future earnings of the business and discount them back to today’s dollars using a “discount” method. The rate that is used is driven largely by the risk they see in the future cash flow of the investment they are analyzing.
The higher the perceived risk, the higher the discount rate and the lower the value. Conversely, the lower the risk seen (compared to other opportunities) the lower the discount rate and the higher their valuation.
Your goal as the owner of a privately held business is to reduce (as much as possible) the risk perceived in your opportunity. By addressing the three areas listed above, in most cases, you can significantly improve the value of your company in the eyes of buyers.
The Unknown Knowns
As Donald Rumsfeld once said, “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.”
Any privately held company will carry some level of risk simply because in most cases there is little public information available. Unlike publicly held businesses that are required to file quarterly reports with the SEC (and often more frequently than that), privately held business largely fly under the radar screen. So the very nature of these companies means a higher level of risk (unknowns) for buyers.
The good news is that you don’t need to reach “perfection” in each of the three areas above to impact the level of risk seen by buyers. In fact, as long as you are making progress towards addressing these issues, you will command a better value than if not.
Of course, there are many other value-building strategies in addition to these three, but the ones you need to implement will depend on your business and its unique situation.
That is what makes the Generational Equity system so successful. The first step in our process creates a full analysis of your business which is then used to create value-enhancing strategies for your company. The value-building ideas that we generate for you will help you better prepare your business for the intense buyer scrutiny that ultimately comes with due diligence.
The very first step in your value-building process would be to attend a Generational Equity exit planning conference in your area. These are designed by business owners for business owners to inform them about the process behind exiting a company, and the investment of a few hours will be well worth it in the long run.
Even if you don’t hire us to represent you, the information you take with you at the end of the conference will enable you to generate a far greater return than if you didn’t have any concept of value-building ideas at all.
To learn more about our services and how you can build a buyer ready business, please use the following links:
By Carl Doerksen, Director of Corporate Development at Generational Equity.
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