M&A activity is up, is now the time to buy?
M&A activity is up
Is now the time to buy?
There’s been a flurry af M&A activity in Q3
Now is a good time to buy
Now is the time to buy up agencies weakened by the COVID crisis for two reasons…
1/ Good strong businesses, good clients, good people doing good work
2/ They won’t be here to buy in 6 months
Some people say that buying companies that are in trouble is somehow vulture like, I totally disagree. The companies I deal with on the buy side are white knights, saving companies and as many as their employees as possible from a fate worse than death.
Right now, there’s a tonne of businesses facing an extremely bleak future and buying them is good for everyone.
Hiring Vs Acquiring
I also hear on the other side of the argument some potential acquirers saying: why not wait until they go bust and then we can pick up the talent on the open market and hire them. THIS is definitely not a great strategy. For a start, hiring costs money, is always risky and doesn’t come with guaranteed revenue attached to it. The assumption can be that clients will move with the employees, but experience says the opposite. The clients will go back out to tender looking to force prices down while they have a chance to commoditise the service they were paying for.
Of course, pitching for the clients coming onto the market is one strategy, but again, it isn’t guaranteed and in a slow moving economy and for the reason above you could be looking at lower revenues per client.
Acquiring a business gives you their revenue to your bottom line straight away. Often, the management of a business are in a predicament for a very obvious reason that they either can’t see themselves or are too emotionally invested to take action.
Finally, any argument about it not being a good time to acquire businesses before a recession doesn’t stand up at all. That’s exactly the best time to acquire, we are talking about making a strategic AND opportunistic acquisition, where prices are lower than usual and businesses that possibly wouldn’t normally be in the market are looking to make a deal. Right before a recession you should be looking at diversification, shoring up revenue streams, pivoting into new markets. All these things can be done quickly with acquisitions.
Not to mention that the value of your money in the bank is going down sat where it is!
M&A during the recession
We work on both the buy and the sell side and we are seeing lots of activity in M&A in the agency world. The next six months will see a huge recession and only the agencies who have put themselves in the strongest position to grow will survive or come out the other side stronger. Many of our buy side clients are able to speak with excellent potential acquisition targets that have been weakened during the last three months, we are closing some of those deals that we begun during lockdown in the next few days.
Maybe as a seller you’re thinking, well, it’s not the time to sell. Actually, unless you are planning to sell in 5 years time, it’s exactly the time to sell. Not only will you be in a safe harbour of a larger company during the coming recession, but many acquirers will be fully loaded with new acquisitions in the next 24 months. Once that consolidation has happened, the market will slow and we will see a return to a new normal at least. It will become a landscape where only the strongest survivors will be going to market and demanding prices to match.
M&A Activity Is Up
Of course, the strongest hand to play right now will be to get your acquisition strategy together. Think about developing a 360° business model, whereby you not only work as an agency, assisting clients with their marketing, but also own and operate your own channels and market your own products. I go into much great detail on how to build a 360° business here.
The recession is no longer on the horizon, it’s here. The economy has shrunk by 21% and its predicted to be the biggest recession for a long time. The good news is, financial institutions will not drag this recession into a deep and long fissure like previous recessions caused by the failure of huge banks and brokerage firms. The stock market has bounced back up and is usually a predictor of the market in general with a lead time of 6 months or so. We can hope that this recession will be deep but short.
Finally, M&A activity is up and has produced some of the biggest deals on record in the last few days. These businesses, heavily invested in, will continue to grow and redeploy the human capital displaced during the crisis. History will dictate the winners and the losers during this great reset, which side will you be standing on?