Sutton Place's Malik Advises M&A Players To 'Go Where It Is Less Crowded'

Feb 3 2015 | 6:16am ET

By Nadim Malik
CEO, Sutton Place Strategies

How many lawyers does it take to help make a trend? 3,514 to be exact. That’s how many law firm professionals, according to Sutton Place Strategies’ proprietary M&A database, worked on at least one middle market transaction in 2014 in the U.S. and Canada.

And what was the trend? A hot acquisition market for companies of $10 million or more in enterprise value. While the complete 2014 picture won’t become clear for another month or two, total M&A activity in the U.S. and Canada was up 14% with a total of 7,327 transactions, compared to 6,430 in 2013.

So why, when 2014 was such a solid year for M&A, is there such angst among buyers? Does this sound familiar? Your pipeline is stronger than ever, but you can’t seem to get a deal across the finish line. You and your deal team are spinning your wheels and working hard, but still not getting where you want to go.

Well, those interested in stopping their wheel-spinning and making more progress may find that the path to improving the results of their business development efforts is to go where it is less crowded. Consider these findings, based on proprietary data from SPS: 579 law firms, 796 financial advisors, and 4,392 financial and corporate buyers completed at least one deal in 2014, and 70%, 72%, and 92%, respectively, did three deals or less. Notice a pattern?

By pursuing the firms and professionals doing only a few transactions a year, you can be one of a few calls when it’s time to get a deal done instead of one of dozens if not hundreds, resulting in a higher likelihood of closing.

Further food for thought:

 ● At 796, the number of unique sell-side financial advisors that closed a deal in 2014 was up 4% from 767 in 2013, which means there are more intermediaries for a buyer to cover.

● Even more interesting is that out of the 796 different intermediaries that did a deal in 2014, 309 were not active at all in 2013! Either they didn’t exist or just didn’t close a deal. This means that even if you had the most comprehensive and current list of active sell-side advisors in 2013 to build your sourcing strategy from, and weren’t refreshing your list and redirecting your efforts along the way in 2014, you would be unaware of 39% of the active deal sources that ended up completing a transaction during the year.

● Finally, approximately 77% of new platform transactions by PE firms had a sell side advisor in 2014, up from 72% in 2013. This means the likelihood of a “proprietary” deal is shrinking.
Given the fundamentals at year-end, including large amounts of available capital from both financial and corporate buyers and a robust lending market, 2015 will almost certainly see increased middle market activity both from PE firms and corporate acquirers alike.
Corporate acquirers looking to fuel growth are increasingly sourcing deals in the lower middle-market, creating more competition for PE firms as well as each other. Our data shows that more than 70% of the acquisitions made by the 25 most corporate acquirers in 2014 were deals valued at less than $50 million, the lower end of the middle market. Large companies, whether they are mature or growing, need to supplement their organic growth with acquisitions, which may mean sourcing smaller deals than they have historically considered.

At the same time, lenders and legal advisors selling their services may be equally frustrated in terms of developing effective new business outreach to target buyers, sellers and the intermediaries who represent them.

So that’s the competitive reality of a strong deal market, going into 2015. Whether you are a private equity investor or company sourcing growth acquisitions, a lender sourcing from PE firms and corporations, or a law firm sourcing from bankers and PE professionals, you may be better off practicing the art of sowing and reaping instead of seeking immediate gratification.

In 2015, make a resolution to stay away from the crowds. Resist the temptation to be reactive with the few that do the most deals, and get proactive with the many that do only a few. If it sounds like hard work, I’ll end with one of my favorite quotes, “If you do today what other men won’t do, you can do tomorrow what other men can’t do.”

Nadim Malik is founder of Sutton Place Strategies, LLC, an information services firm that helps private equity and corporate buyers, mezzanine firms, senior lenders, and advisors improve their deal origination and business development effectiveness across the M&A marketplace in the U.S. and Canada. The firm’s core service is Deal Origination Analytics™, an annual subscription based service that consists of a customized report package designed to quantify the addressable universe of a client’s transaction target market, measure market penetration, and serve as a road map to increase the effectiveness of their business development outreach. The reports are backed by proprietary data tracked on a primary basis by Sutton Place Strategies since May 2009.

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