Keys to Successful M&A: Market Outlook & Strategic Preparedness

Selling a business is a huge milestone for many founders and entrepreneurs, and the timing and preparation for a transaction are critical to maximizing success in a merger or acquisition. In our recent M&A webinar with KO’s Jennifer Rosenthal and GLC Advisors’ David Bluth, we explored essential strategies for business owners planning to exit and provided actionable advice to streamline the process and maximize value.

First, successful M&A transactions often hinge on the alignment of three critical factors:

1. Macro Considerations: External factors like geopolitical stability, interest rates, and industry-specific trends can significantly impact the market environment. Similarly, the availability of capital and market psychology—whether buyers are eager or cautious—play a major role in determining valuations.
2. Internal Considerations: A company must be operationally and financially prepared for a sale. This includes assessing the stability of key customer relationships, ensuring diversified revenue streams, and evaluating product lifecycles. For example, businesses heavily reliant on one or two customers may face greater scrutiny from buyers, as this poses a higher risk. In another example, companies should consider whether to focus on legacy products or transition resources toward newer, high-growth offerings to attract premium valuations. Additionally, the management team must be ready to adapt to buyer expectations, whether that means staying on post-sale or transitioning out.
3. Shareholder Considerations: Shareholder alignment is essential. Business owners must reflect on their readiness to exit—whether it’s part of a retirement plan or the next step in a serial entrepreneur’s journey. For companies with multiple shareholders, ensuring collective agreement on the sale is vital. Misalignment among stakeholders can derail deals and discourage potential buyers, particularly if unresolved tensions spill into negotiations.

Strategic Preparedness Can Help Streamline the M&A Process

Preparation is the foundation of a smooth and successful M&A transaction. Companies that invest time in thorough groundwork often achieve stronger outcomes. Key steps include:

• Select the Right Advisors: Your team of advisors—including M&A attorneys, investment bankers, and tax professionals—should bring deep expertise and a strong understanding of your industry. They’ll help guide the process, anticipate potential challenges, and manage negotiations effectively. A strong team can also help avoid costly mistakes, such as undervaluing the business or mismanaging due diligence requests.
• Craft a Compelling Story: A strong narrative enhances your company’s appeal to buyers. Highlight your growth trajectory, competitive edge, and market potential. Be ready to articulate why your business is uniquely positioned for future success and why now is the right time for the sale. For instance, SaaS companies might focus on metrics like customer retention and lifetime value to acquisition cost ratios, while other sectors may emphasize revenue growth or industry disruption.
• Conduct a Pre-Sale Cleanup: Proactively address any gaps in operations, legal contracts, or finances before going to market. For example, ensure employment agreements are signed, intellectual property (IP) is properly owned by the company, and customer contracts are solid. If historical issues arise during due diligence, they can erode buyer confidence or result in lower valuations. A well-prepared company reduces the risk of surprises that could disrupt negotiations.
• Employee Communication and Incentives: Effective employee management is crucial during an M&A process. Limit knowledge of the sale to key leadership until the deal nears completion. Announcing a potential sale prematurely can create anxiety among employees, customers, and vendors. Engage only a small group of trusted leaders early on to help gather necessary information and support the transaction. As the deal progresses, consider introducing transaction bonuses or equity incentives for key contributors. This ensures they are motivated to support the transaction while maintaining focus on day-to-day operations. Incentives can be structured as one-time payments at close or tied to performance milestones post-sale, depending on the deal structure. Buyers may request conversations with key customers or suppliers late in the process, but broader disclosures should be avoided until absolutely necessary.

M&A Market Outlook

While economic uncertainties remain, the M&A market is showing promising signs of recovery heading into 2025. Public markets are near all-time highs, and private equity firms have significant “dry powder” to deploy. Strategic buyers, many of whom have been cautious during recent downturns, are returning to the market, creating increased competition for quality assets.

Interest rate cuts and improved buyer-seller alignment on valuations have contributed to a healthier deal environment. However, buyers are still cautious, performing extensive due diligence to ensure that target companies are financially and operationally sound. Sellers who invest in preparedness, maintain clean financials, and present a strong growth narrative will be best positioned to capitalize on this renewed activity.

Timing, preparation, and strategic alignment are the keys to a successful M&A transaction. By carefully considering macroeconomic trends, internal readiness, and shareholder objectives, business owners can enhance their chances of achieving a favorable outcome. Investing in the right advisors and thorough pre-sale preparation will ensure a smoother process, protect value, and increase the likelihood of closing the deal on optimal terms.

Tune in the full webinar recording below: