Businesses Looking For Investors May Be Getting Less Because They've Missed Their Window

The mergers and acquisitions (M&A) market was quiet at the end of 2022, but there’s hope that 2023 will be a better year. 

But the more optimistic scenario could be predicated on whether you’re buying or selling. And while some believe M&A activity will accelerate in the second half of this year, others believe the optimum opportunity for sellers, at least for the time being, has passed. 

Stephen Meadows is the COO of Coldwell Banker Premier, which has offices in five states and Washington, D.C., and also leads the company’s M&A activity. He told Benzinga that 2023 had become a strictly buyer's market because many business owners waited too long to cash in. 

“I’m not a doom and gloom guy, but in this market, the strong will survive. A lot of people should have sold in 2019, but they got used to COVID money,” he said. “Now they’re saying they don’t have anything to sell, or they’re just expecting a lot less.” 

Meadows recently penned an article in Real Trends highlighting the five M&A myths that kill deals. Among them was the misnomer that buying or selling in this economic environment is easy. 

“A lot of owners are saying, ‘Crap — I really missed the window.’ They’re having revenue problems right now, and if they have two years of negative net income, I just don’t know who’s going to buy them,” he said. “The issue for a lot of companies is they’re just not going to put in the effort to fix it. 

“If you have an owner who is getting older, they aren’t going to throw money into business development, marketing and technology. They’ve just missed one of the hottest markets ever, and now they’re in a depressed market and they don’t have the energy or the resources to fix it. They’re saying, ‘Wait, I just lost money and I need to reinvest?’ They’re not going to do it, so they’re not going to get what they want.” 

According to S&P Global Market Intelligence data, the more prominent big-ticket M&A activity is also off to a pretty slow start in 2023, and it’s the regulatory environment that’s slowing deals. 

The Biden administration has made more stringent antitrust reviews a priority. The data shows that no global deals announced in January had a transaction value of $10 billion — the fourth calendar month since the start of 2022 that ended without an M&A deal surpassing that threshold. 

But Meadows, who is not in the blockbuster merger business, sees smaller to medium-sized companies, not aligned with government oversight, as too focused on getting cash deals, which he says means they might get less than what their business is worth. 

“In cases where the buyer pays all cash, the seller usually takes a significant haircut on the price, sometimes as much as 40%,” he said. 

He also warns that taking a quick deal is not in the best interest of either buyer or seller and adds there’s one piece of crucial strategy he’s now telling all of his clients. 

“Sell the company, but keep the real estate out of the deal,” he warned. “Keep it separate. It’s hair on the deal. It just messes things up and is extra stress on the buyer unless they happen to be flush with cash.”

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