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Interest rates, inflation and supply chain pressures will summon a more cautious legion of buyers in the second half of 2022, slowing the rate of mergers and acquisitions and prompting deal makers to take less risks and conserve cash. Coming off a record year globally for private equity M&As, 2022 is revealing itself as a year of economic uncertainty.
Investments will continue, but experts say the players will be more strategic. Take, for instance, the emerging shift toward domestic sourcing to offset overseas supply chain challenges. Or tapping an entire team of qualified individuals to counter the mushrooming talent shortage. These scenarios and others like them offer possibilities for companies to fill the specialized needs of larger organizations.
“There’s a move afoot to do more domestic sourcing, which creates opportunities for a number of companies. And some buyers are strategically thinking about people and resources. M&A is a very attractive solution for them to address a labor challenge they have,” said Jim Gaspo, commercial regional vice president of Upstate New York for TD Bank.
Because cash flows get discounted when interest rates rise, Gaspo expects slowed M&A activity during the second and third quarters of 2022. He anticipates Q4 as a time for buyers to reevaluate the environment and decide whether to move ahead with their strategic acquisitions. As it becomes more difficult to procure commodities or access great talent, some Capital Region companies could be poised for investments, Gaspo said.
Outright sale isn’t the only option, he said. Employee stock option programs, or ESOPs, offer tax advantages to the seller and can be good alternatives for mid-sized companies with fewer than 500 employees.
Before you sell, know exactly who you are
In a precarious economy, investors are more inclined to take their time and ask the hard questions, Brian Murphy, partner at Couch White, said during a June 16 Mergers & Acquisitions panel discussion, the third in a series of Executive Forums hosted by the Albany Business Review. Murphy expects strategy and long-term planning to replace the “feeding frenzy” of 2021’s private equity activity.
“Activity will still be there for good companies to fill that niche. It’s just going to be a changed environment. But if you're a good business and you fit a need for a strategic buyer, opportunity will still be out there,” Murphy said.
More than ever, best practices play a critical role in developing a go-to-market strategy. Howard Foote, office managing partner – Capital Region at UHY LLP, sees culture, including the ability to attract, recruit, promote and retain talent, as essential markers when companies position themselves for sale. An organization’s best practices should address five major issues: first impression, assembling the advisory team, getting finances in order, understanding the company’s profitability and knowing its valuation.
Read the full article, originally published in the Albany Business Review.