Peak M&A Has Passed & Leaders Must Adjust, But How?

Peak M&A has come and gone, and this means companies will be forced to rely upon organic growth for expansion.

But what does this mean for executives and how they will lead companies? Below CEO today hears from Hugh Shields at Shields Meneley, who discusses the changing management styles of today’s leaders.

C-Suite executives are under enormous pressure today as M&A activity slows. Growth strategies that were fueled by a frothy M&A market must now be replaced by an intense focus on organic growth driven by market expansion, increasing revenues, operational improvement, and innovation.

This slowdown focuses leaders on the people side of the business and on the successful operational and cultural integration of previously acquired companies. Without that, planned synergies just can’t be achieved. Your management teams must be prepared to handle the complexity of scope that accompanies a larger business and is aligned around strategy and mission so the organization is in a strong position for a later market upswing.

Having said that, it is important to separate the interests of corporate leaders and private equity partners. Corporate leaders are taking their foot off of the M&A accelerator because they don’t like risk, and the major market fluctuations is making them nervous because no one can predict whether this is going to be a full recession or whether it is a necessary correction.

Private equity has slowed M&A activity for different reasons: difficulty finding the appropriate valuations for the acquisition targets. There is a tremendous amount of dry powder on the sidelines. Institutional investors, who pay most of the maintenance fees, are pushing to ramp up capital deployment.

Private equity firms hit peak deal value in 2015, 2016, and 2017. In 2015 the asset class hit just shy of 27,000 closed deals; in 2016, that number was just shy of 25,000 deals; in 2017 it was just over 23,000, and as of October 2018, that number dropped to only 15,000. Based on the trend and what we hear from our robust network in the private capital space, 2019 deal-making is set to be even slower.

General partners still have the mandate to get deals done no matter what the economic climate. After all, that’s the reason limited partners agree to pay premium fees. As a result of these trends, private equity is moving from large cap, to mid-cap, and now down to the lower middle market, small cap and microcap to find better valuations.

Today’s business leaders must adjust their management styles to survive the current M&A downturn and redouble efforts to communicate the strategy and where the company is headed.

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