Timing: A Critical Factor in M&A

Timing is, without doubt, one of the most critical factors in mergers and acquisitions; a recent report found that it is, in fact, the single most reliable predictor in terms of creating real shareholder value.

But why is timing so crucial?

Think Macro!

Acquiring a company is a risk that’s ultimately taken based on the health or otherwise of economies – and we’re talking about macro-economies here, looking way beyond the company in question, as opposed to the ‘micro’ environment of the business itself.

The big picture is that the right conditions for economic growth – with the accompanying revenue growth, market growth and profits – are required at the end of the day in order for the acquirer’s shareholders to reap the benefits of the deal; value creation in M&A depends on it.

No Time like the Present…For Now

Deals that were announced during the ‘economic bubble’ period of 2004 to 2006 bore out the importance of timing in the macro-economic sense, creating significantly greater shareholder value than deals that were announced at the peak of the economic cycle in 2007 or during the 2008 to 2010 ‘slide’.

The global economy is currently in a ‘recovery’ period, despite high levels of general uncertainty socially and politically, so now is a good time for deals.

Companies can – and do! – wait too long for election results, interest rate movements and so on and fail to move fast enough. Too long a wait can mean smaller returns during the window of growth, and “time is the enemy of all deals,” to quote FT contributor Richard Harroch.

This also impacts, of course, on the importance of swift and decisive execution in the deal-making process. Due diligence is crucial, but the movements of the wider economy must be considered at all times.

Other Factors

Timing isn’t the only predictor of success in M&A, however; deal size also comes into play, for example, and this will be the specific focus of an upcoming Benchmark International post. Watch this space!

For more information about selling your business, contact our expert team at Benchmark International.

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