Equities.com broadcast contribute Silvia Davi recently spoke with Paul Aversano, Managing Director and Global Practice Leader of the Transaction Advisory Group at Alvarez & Marsal, for deeper insights into where deal capital flowing toward and what companies are doing to get ahead of the curve.
“What we’re seeing is still a fairly robust M&A market,” Aversano said. “It’s not going to be as a robust year as 2015, clearly that was a record year and there were a lot of things driving M&A activity. But what we’re seeing is still a fairly active M&A pipeline. You see a lot of data that says M&A is down, but what does that really mean? … If you really dig in, at least the space we’re involved in, that upper-middle market large-cap private equity market, that’s where a lot of the fundraising is taking place. We’re seeing it not just in the US, but in particular, emerging markets.”
Aversano adds that uncertainties in Asia, India and Latin America have created value opportunities that is attracting money flow out of the US market. “It’s very interesting seeing money move around the world to chase value,” he said.
Meanwhile, the US is not without its own uncertainties, primarily with it being an election year. But political and legislative uncertainty is viewed very differently than operational and economic uncertainty. Companies need to understand the playing field that they’re operating in before assuming the risks of a turnaround acquisition. For this reason, dealmaking in the US may be taking a bit of a breather.
“The market doesn’t like uncertainty,” said Aversano, who added that he’s been through five election cycles. “Until the market knows who is going to be in the White House in the fall, and what the fiscal and monetary policies are going to be, there tends to be a pause every election year. So one of the things I think is happening is you are seeing M&A activity maybe being pulled forward this year to get ahead of this election cycle. It’s going to be interesting to see if that activity continues through the summer. If it does, then that would be a bullish sign, but quite frankly, my personal opinion is that it’s going to slow during the summer months until they figure out what happens in November.”
Meanwhile, Aversano suggests companies take the time to access all their options in advance, regardless of timeline, and prepare their strategies accordingly. In many cases, by the time a company has decided it wants to pursue an exit, either by IPO or sale, they’ve underestimated how much actually needs to go into getting a deal done.
“Start early in the process,” he said of the challenges that emerging growth companies face. “By the time [companies] call a firm like Alvarez and Marsal, they haven’t given themselves enough time to do something. So start early. That would be the number one thing. Even if you don’t know what your needs are, it can’t help to bring someone in like Alvarez and Marsal to help you understand what your needs are and the timing to do what you want to do. So give yourself enough time is one of the key things that I would say.”
Another key for companies is to reinforce the strengths of the management team, which according to Aversano, is the most important criteria a company needs to meet when preparing for an IPO or sale.
“The most important thing is management,” Aversano said. “I hear from my private equity clients all the time, yes, they’re buying a business, but they’re really betting on the management team. Good people find a way to be successful.”
He explains that companies are getting smarter by upgrading and integrating more IT, reporting, and internal controls into their operations.
Founded in 1983, Alvarez and Marsal advises clients in the private equity, global corporations, and the restructuring service provider industries in financial accounting, tax, and operational industry and functional expertise. The firm is celebrating the 10-year anniversary of its Transaction and Advisory group, which Aversano leads.
“We have a very unique business model,” Aversano said. “It’s combining financial accounting with tax expertise but really integrating that into the operational industry and functional expertise that A&M is known for, and bringing that to private equity and all that suite of services under one umbrella, 10 year ago that was really innovative. Nobody was doing that in 2006. That model is still very relevant today, actually even more so. That’s what’s driving our business.
“As our clients have grown, they require a growth in service, particularly globally, so we’ve expanded our services globally. We’re in Europe, Asia, India, Latin America, and growing that. The world is an increasingly global place, and if you don’t have the global services to serve your clients, you’re going to be left behind. They’re demanding it and we’re bringing it.”
SOURCE: ALM VANGUARD: TRANSACTIONS - ACQUISITIONS CONSULTING JUNE 2019 REPORT
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