An acquisition during times of economic uncertainty can pay off. The median acquirer during the 2001 recession outperformed its peers by 2.43% in the first six months and 7.01% that year, according to data and analytics firm PwC.
Over the past two years, M&A deal valuations have set astounding records, bolstered by low interest rates. In North America, they rose 81% in 2021, peaking at $2.5 trillion, according to S&P Global Market Intelligence. The number of deals also increased by 33.3% to 23,720.
Now, despite high interest rates slowing deal volume and bringing down valuations in the second half of 2022, activity is expected to bounce back up in 2023. In fact, M&A deals are among the top strategies for growth for businesses with capital, according to PwC. In a November 2022 survey, 35% of executives reported plans to make an acquisition or divestiture, up 10 percentage points from August 2021.
Why? Alexis Grant, founder of online media brand and entrepreneurial resource They Got Acquired, explains various ways companies can grow more efficiently by joining forces. “That might be a similar company that gives them access to a new client list, or it might be an adjacent service so they can add that service to what they offer and therefore make their overall offering more valuable to current customers. Or they might be more interested in bringing the team in-house to help them achieve their goals,” she says. “Typically, buying a business helps a company get to their goal faster or more affordably, or helps them do something they couldn’t have done with their existing resources.”
“Culture clashes are the most common problem when integrating teams that have been acquired. You’ve got to make it worth it for your team financially of course, but they also typically want to feel needed and appreciated within the new company.”
They Got Acquired, which she launched in 2022, is giving prominence to smaller M&A deals ranging from $100,000 to $50 million through articles and data reports featuring metrics typically kept confidential. Grant has also navigated a few exits herself. In 2015, her content marketing agency was acquired by The Penny Hoarder, where she continued to build up the bootstrapped personal finance media startup toward an acquisition with a public company. She also sold an online writer community called The Write Life in 2021.
Read on for an edited excerpt from our exclusive interview with Grant.
Senior Executive Media: What are interesting trends you’re seeing in the acquisition space?
Alexis Grant: One interesting trend is just how much interest there is in online audiences, via publications and communities. Because of the pandemic, a lot of businesses shifted more online, and they realized they need new ways to bring customers into their pipeline… For the tech-focused, online companies we cover, it was a good time to sell. It really depends on the industry. But many buyers wanted to expand online because they couldn’t do so in person, so online companies were in demand.
Senior Executive Media: What do senior executives look for in another company when seeking potential acquisition or merger opportunities?
Alexis Grant: Most buyers look for a business with healthy revenue and profit or earnings numbers, so that’s the top lever [entrepreneurs] can pull to both make [their] business appealing and increase the sale price. Predictable, repeatable revenue is preferable. [Buyers] also want to see a competent team running the business, and that it’s not dependent on one person’s skill or brand.
Senior Executive Media: What are common challenges or problems when integrating teams?
Alexis Grant: Culture clashes are the most common problem when integrating teams that have been acquired. You’ve got to make it worth it for your team financially of course, but they also typically want to feel needed and appreciated within the new company.
Senior Executive Media: How important is it for founders to find a buyer with a culture or vision that aligns with their own, versus a higher payout?
Alexis Grant: That’s really up to each individual founder. Some prioritize selling to a company that will take care of their customers or audience in the long run, while others want to make sure it’s a place where they want to continue to work. However, others optimize for the financial transaction and then exit.
Senior Executive Media: What are some of the arrangements you’ve seen in acquisition deals?
Alexis Grant: [Entrepreneurs that have] built a business that’s appealing to buyers, can really ask for anything [they] want. There’s no guarantee the buyer will agree, of course, but [entrepreneurs] don’t have to follow a certain set of rules for the terms of the deal. They can structure it in whatever way works for them and the buyer.
For example, in the sale of the Half Marathon Guide, founder Terrell Johnson kept his email list. That’s unusual, because a media company’s email list is typically one of their most valuable assets, but in this case he wanted to keep it, and the buyer agreed.
Most agency sales include some form of earn out, but when Jodie Cook sold her marketing agency, she was able to avoid an earn out altogether.
Senior Executive Media: How long do founders typically stay on?
Alexis Grant: It really ranges depending on the type of business, the buyer’s goals, the seller’s desires and how the business operates. Many founders want to stay on to continue to grow the business with the increased resources provided by their new parent company. Others want to exit quickly. There are no set rules here… Set up an arrangement that’s a win for you both.
Even when the founder plans to exit immediately, there’s usually a transition period, which can range from a few hours to a few months of work, to ensure a smooth handover.
Senior Executive Media: What’s a major lesson you’ve taken from your conversations with founders that you’re applying for your own business?
Alexis Grant: One theme I’ve noticed is that a lot of founders don’t think of selling until they are burned out, and that’s really not the optimal time. Selling a business can be a marathon, so [entrepreneurs] don’t want to begin the process when you’re completely depleted of energy. Plus, as [they] begin the sale process, [they] might discover things [they] want to fix in the business before selling to maximize its value, and those take time and energy to implement.
So my advice would be, don’t want until you’re burned out to sell. Sell before then. Of course, it can be tricky to figure out the right timing. But I would start thinking about it as soon as I felt even minor inklings of burn out. Some founders start with a long vacation or sabbatical, which helps their team learn to run the business without them, brings to light any challenges in the business, and lets them figure out whether they’re truly done with the business or just needed a break.
Senior Executive Media: How should executives who want to explore M&A keep an eye on their industry?
Alexis Grant: Many keep an eye on startups in their field that might end up becoming targets. Niche industry publications that help you keep up on the news in your industry will likely serve the same purpose of helping you keep up on which new companies are up and coming. Buyers sometimes also have relationships with M&A advisors who specialize in their space, so they can keep an eye out for them and let them know if opportunities arise that might be a fit for that company. But often, if you’re a true expert in your space, you’ll also know which new companies are getting talked about or making a dent.
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