The decision to buy or sell a company is a high stakes decision, whichever side of the deal you are on. And post deal euphoria for those involved is understandable. But the real test of the wisdom and value of any transaction usually takes some years to be tested and proven. This is especially true of businesses in the client service industry. The race to achieve market leading scale and extend capabilities in a complex, fast changing marketplace where hitherto discrete services domains are converging has only heightened the risks involved. The dramatic acceleration in M&A activity especially over the last 3 years has resulted in a ‘seller’s’ market with valuations at unprecedented levels and in many places a shortage of businesses and assets to be acquired. So- called platform acquisitions which an acquirer can use as a foundation for the acquisition of additional capabilities are harder to find. Increasingly the search is for smaller less mature organisations. These organisations are by definition earlier in their organisation life cycle and typically still dependent to a significant degree on the vision, drive and values of the founding entrepreneur. In times past, acquirers could mitigate risk by making as much as half of the purchase price contingent on future performance but in today’s seller’s market this is rarely the case. Sellers are guaranteed all or virtually all the acquisition price up front provided they simply stick around for a few years. As a fast growing M&A advisor PCB Partners philosophy and design is ideally suited to this marketplace. The senior team combines successful entrepreneurs like Ben Doltis, who built and sold his own companies to the ManpowerGroup in 2013 and Andrew Bloch who similarly built and sold his own marketing services firm to Enero, together with PCB’s industry experts with a wealth of experience in strategy and organisation development as well as private equity and corporate finance.

Describing an M&A advisor as ‘the entrepreneur’s friend’ seems at first to be a contradiction in terms, but it is not. PCB’s goal is to discover through its network of industry relationships, fast growing high potential organisations early on their S Curve of development. Often these companies are approaching an inflection point but have not yet made the decision to be acquired. And though small now, they may contain the seeds in people, IP and ideas that will propel the next generation of success in 5 to 7 years.

These companies are ideal targets particularly for companies that have made the execution of programmatic M&A a core part of their strategy and as a result become true masters of identifying negotiating and integrating acquisitions. However, as the disparity in scale between the acquirer and target continues to increase, so the fear of loss of identity and degrees of freedom to develop in the future also increases.

At PCB, we have learnt that being trusted by the selling entrepreneurs, being able to identify with their hopes and fears, genuinely considering ‘parenting’ fit and at times being able to step into negotiations to circumvent ‘stalls’ is a valuable service to our buy side clients and to the sellers as well. The reality is that, although ultimately every transaction finishes with a negotiation of terms, acquisitions that stand the test of time and create real economic value need to create a win-win dynamic.  Today’s valuations are increasingly hard to justify on simple growth projections of the acquired company. They require a bet on additional possibilities that are not yet visible or fully understood but which will emerge once the companies are combined under common ownership. Shared vision, momentum, agility and a culture of mutuality and possibility are the ingredients needed for the longer term.

Companies spend trillions of dollars a year on acquisitions. And in truth many of them don’t come close to the returns expected, though this is usually only visible externally in the case of large acquisitions that fail, but acquisitions that don’t work out distract from other priorities, absorb resources that would be better deployed on the next growth curve and can dilute rather than reinforce differentiation.

Acting with a foot in both camps, whilst it takes great care, can be what makes the difference.

Tim Breene Senior Advisor