Nearly every CEO and entrepreneur has a vision for their future growth. Scaling a business requires several distinct ingredients. For most emerging companies, a combination of organic growth and acquisitions yield the best results. In recent months, pandemic conditions and recovery efforts have led to a sharp rise in mergers and acquisitions. Here is a brief overview of what has transpired this year.
Special Purpose Acquisition Companies Fuel M&A Activity
In just the first half of 2021, the number of deals worth more than $5 billion surpassed the total activity for the previous year. Financial and healthcare industries topped the charts, accounting for nearly half of the mega deals occurring this year. In many cases, these transactions were opportunistic in nature. In other circumstances, an acquisition was the only viable way for a company to avoid bankruptcy or full closure.
Special purpose acquisition companies, or SPACs, are partly responsible for this M&A growth. These groups are empowered to make major financial decisions on behalf of an investor or syndicate of investors. Leaders or trustees have a fiduciary responsibility to seek out and research potentially profitable investment opportunities. In most cases, upfront contracts require that a SPAC make recommendations or return the initial investment deposit within a set time period.
Upcoming Trends in M&A
As international financial markets begin to regain stability in the wake of an ongoing pandemic, new trends are starting to appear on the horizon. An increase in IPOs and a rebound in the housing markets are two big indicators that business and industry are operating with a renewed positive outlook. Employment forecasts are another indicator of consistent and stable growth.
Even as new businesses emerge and others are still in the conceptualization phase, many are reaching the age of maturity. The latter is ripe for change. Part of the transformation could be absorbing a new company or merging with a competitor. Acquisitions in this phase are usually due to business owners or CEOs who are no longer interested in pursuing continued growth. They prefer to slowly retire from the public eye while keeping their brand, or some part of it, relevant and active.
What is the True Value of a Merger?
Savvy investors must temper the excitement of potential earnings with adequate due diligence. Not every opportunity is as lucrative as it may appear on the surface. Understanding hidden debts or other financial pitfalls is just as important as uncovering raw talent or profitable processes and resources. A full financial valuation will reveal all the relevant pros and cons associated with a merger or acquisition.
Appraisal Economics specializes in a variety of M&A valuations including fairness opinions, purchase price allocations, and solvency opinions. Armed with complete and accurate information, investors can make sound financial decisions for their future.