The business of Mergers and Acquisitions has been a hot topic as enterprises continue to ride the stormy wave of this uncertain economy. Companies in the United States are always looking for innovative methods to remain competitive and profitable.
With problems such as 40-year-high inflation, shifting interest rates, and continuous quantitative tightening, the mergers and acquisitions market has cooled over the past few years. However, the latest Deal Barometer forecasts that the 2024 US corporate M&A deal volume will increase, as well as US private equity M&A deal volume will rise. But this slow rise is due to the various myths that abound, creating unnecessary fear, uncertainty, and doubt among business owners. Dino Lucarelli, CPA, who leads Capital Tactics Inc., is on a mission to dispel a few of the many pervasive myths surrounding M&A strategies. Through his extensive experience, Dino aims to illuminate the truth behind these myths and highlight the critical role of ethics in successful deal-making.
The first myth Dino seeks to debunk is the notion that M&A deals should be straightforward and uncomplicated. Many business owners shy away from complex deals, fearing that complexity equates to the potential for unethical practices or hidden dangers. However, Dino argues that the intricacy of a deal is not a detriment but a safeguard.
In any big M&A deal, numerous parties are involved, including buyers, sellers, attorneys, accountants, and various advisors. Each party has specific interests and requirements, making the process inherently complex. This complexity, according to Dino Lucarelli, is essential for maintaining ethical standards and protecting all parties involved. “For example, bringing in IT specialists to evaluate the technology infrastructure or risk managers to assess potential liabilities ensures that no stone is left unturned,” he continues. “By addressing these complexities, we create transparency and reduce ambiguity, which ultimately benefits both the buyer and the seller.”
Mr. Lucarelli emphasizes that a well-structured, complex deal often takes up to 180 days to complete, as opposed to rushed transactions that can be wrapped up in a fraction of the time. Beyond this, certain complicated transactions could take a year or more. This thorough approach allows for meticulous due diligence, ensuring that all potential risks are identified and mitigated.
Another common misconception is that selling a business to a private equity (PE) firm is inherently disadvantageous. Many business owners fear that PE firms will exploit them, undervalue their companies, or impose unfavorable terms. Dino challenges this myth by highlighting the numerous advantages that PE firms can offer. “Private equity firms exist to acquire good companies and enhance their lives,” he states.
Dino acknowledges that the PE industry, like any other, has its share of bad actors. However, he argues that swearing off the entire industry due to a few bad experiences is short-sighted. Many PE firms are run by value-based, fair-minded professionals who aim to create a win-win scenario for buyers and sellers. “Private equity firms typically offer higher purchase prices and are more accommodating to sellers’ requests,” he explains. “They have the expertise and resources to navigate the complexities of M&A transactions effectively, which often leads to more efficient and favorable deals.”
By partnering with a reputable firm, business owners can truly leverage the firm’s industry knowledge, financial resources, and due diligence capabilities. This partnership can result in a more robust and successful exit strategy, contrary to the fears and uncertainties that many sellers harbor.
Another myth Dino addresses is the belief that business owners do not need professional negotiators for M&A deals. This misconception often stems from a combination of overconfidence and a desire to save on advisory fees. However, the Capital Tactics founder asserts that having experienced negotiators is crucial for a successful and ethical completion of a deal. “Misinterpretation of terms can be fatal to a deal,” he warns. “Professional negotiators ensure that all parties understand the terms and that the deal structure is fair and beneficial for both sides.”
Dino Lucarelli recounts a recent experience where a client decided to handle negotiations directly with the seller. Despite months of preparation and analysis, the deal fell apart due to miscommunications and misunderstandings that could have been easily resolved by an experienced intermediary. “The client assumed that the seller would be able to ‘figure it out,’ but that’s rarely the case”, Dino says. “Our role as negotiators is to bridge these gaps and ensure that both parties are on the same page.”
Having skilled negotiators also helps maintain ethical standards by preventing potential conflicts and ensuring that all terms are transparent and agreed upon. This reduces the risk of future disputes and fosters a smoother transition post-deal.
A recurring theme in Dino’s myth-busting efforts is the importance of ethics in M&A transactions. Complexity, professional negotiation, and partnering with reputable PE firms all serve to uphold ethical standards and protect the interests of all parties involved. “Ethical behavior is of utmost importance when it comes to M&A deals,” Dino asserts. “By embracing the complexity of deals, engaging professional negotiators, and working with reputable firms, we can ensure that transactions are conducted transparently and fairly.”
This veteran believes that debunking these myths not only educates business owners but also elevates the entire M&A industry by fostering trust and integrity. He and his team at Capital Tactics are committed to guiding clients through the complexities of M&A with a steadfast focus on ethical practices. “Understanding the realities of M&A can empower business owners to make informed decisions and pursue opportunities with confidence,” Dino Lucarelli concludes. “Our goal is to demystify the process, alleviate fears, and uphold the highest ethical standards in every transaction.”
