Utilising M&A in an economic downturn

Seeing the current rapid rise of inflation, the increase in interest rates, geopolitical instability and economic decline, it is no wonder that entrepreneurs are hesitant about getting involved in M&A activity. Previous trends have shown that circumstances like these usually do not benefit deal flow. Current prospects, however, are better than you might think. In this article we explain why an economic downturn could be a good thing for M&A.

Companies for sale

It is true that deal activity has slowed in 2022 but, considering the current economic unrest, it remains at a strong level and the outlook for 2023 in full is looking good. Volatility does not only bring uncertainty, it also provides opportunities for those who are prepared. Turbulent economies often result in lower company valuations and a rise in the number of companies for sale. This, however, is good news for those who want to acquire a business and it poses an opportunity to take advantage of.

Ensure certain opportunities

Economic uncertainty has created new opportunities and forward-thinking in the past; bold entrepreneurs willing to utilise this might be rewarded for their daring later down the line. More and more entrepreneurs consider the sale prospect as an opportunity to secure the company’s future, even if that means new ownership. A buyer can ensure certain opportunities that can otherwise be hard to achieve in an economic downturn; like bringing a stronger balance sheet, diverse market opportunities or the ability to scale. But before taking this step, owners have to be conscious of the kind of buyer they want to engage with, so they choose the right buyer that will continue to protect the company’s legacy and is aware of all the available opportunities.

Considering an exit

Slower economic periods prove to be a good time to prepare a business for sale, even if an entrepreneur is not thinking about looking for a buyer in the immediate future. Preparation is key for those who are considering an exit. Currently, capital levels are likely lower for buyers and so the most attractive prospects will be businesses that have prepared themselves properly. It is well possible that buyers will be doing fewer deals, choosing quality over quantity. There are certain boxes entrepreneurs will need to tick off to make their business appealing to potential buyers and ready to take advantage of opportunities that may arise from current circumstances. Think, for example, of ensuring that the company’s financials are in order, company values are clear and a strong management team is in place.

A rise in M&A activity

Besides, entrepreneurs should stay informed on any regulations that could possibly affect the deal, be aware of how the company’s acquisition eligibility may be determined and be clear on the company’s strengths and goals. Working with an M&A adviser can help entrepreneurs prepare for a deal. It is hard to predict, but as more entrepreneurs are looking to sell and utilise opportunities that a sale can bring, we can expect a rise in M&A activity in 2023. Forward-thinking businesses should be preparing themselves to use the opportunities an economic downturn provides, instead of avoiding any M&A activity. Good preparation is key to ensuring that a company stands out, and will also help to ride out the storm of economic uncertainty.

Considering to sell your company?

Whether you aim a new challenge, want to end your career as an entrepreneur or you have ambitions for (international) growth, you may always get in touch with our M&A-specialists to exchange your ideas. They will be happy to dive in and advice you in which steps to take, always committed, independent and professional. Marktlink offers a large national and international network and we always will use our knowledge and experience to help you in creating the best strategy.