Founders need to think differently about M&A exits

Half of all M&A deals fail, largely due to the common practice of hiring an M&A banker and hastily marketing the business for sale. Instead, companies should start exit preparations earlier and proceed more deliberately, advises Victor Basta, CEO and Founder of DAI Magister.

In 2024, the M&A market has returned to its challenging norms, declining from the exceptional heights of 2021-22. Exits over $100 million have reverted to 2018-19 levels, which, though better than the previous decade, still present difficulties for maximising company value. Factors like high interest rates and a trend of public companies going private necessitate meticulous, long-term planning for successful exits.

DAI Magister suggests a two-stage M&A process: 'Stage 1' focuses on marketing the company, while 'Stage 2' centres on executing the sale. This method allows buyers, particularly strategic ones, ample time to understand the company’s full value and come prepared to transact. Ultimately, the aim is for companies to be acquired rather than simply sold.

Basta says: “Success in an M&A exit is down to two factors: certainty and price. The conventional wisdom is to hire an M&A banker, prepare a selling ‘book’ and market the business for sale. However, roughly half such efforts fail. Even where they succeed, the outcome is either a deal at a lower price or one that closes amidst uncertainty. DAI Magister’s experience shows that this approach is just as likely to result in a lower price and less certainty as it is to achieve a quality outcome.”

According to DAI Magister, ‘Stage 1’ involves structured, sustained exit planning over a 6-18 month period to lay the groundwork before a company engages in a traditional formal M&A process (‘Stage 2’). Key to this succeeding is that Stage 1 is largely invisible to the general market; a company is not reaching out to dozens of buyers with a for-sale process and materials, requiring a response within a defined time-frame.

Basta continues: “The simple objective of this stage is to achieve a higher price with greater certainty by quietly cultivating buyers in gradual steps, developing and communicating positioning, and proactively addressing potential deal roadblocks well before any strategic buyer is asked to bid. This stage is what pushes the company closer to being bought rather than being sold.”

After investing time and resources in building conviction and alignment with these potential buyers, a company enters a structured M&A sale process with a strong tailwind of momentum and engagement from buyers who are genuinely interested in an acquisition. This pre-qualification and cultivation of buyers helps to maintain competitive tension throughout the process. The company negotiates with counterparties who have a clear strategic rationale, fully understand the opportunity and have a strong desire to complete a deal. Real competitive tension develops, shifting the burden of maintaining momentum to buyers motivated to move quickly and decisively to secure the asset.

Basta concludes: “In some cases, an intensive second stage in isolation is the right answer. For example, instances where there is a defined group of buyers already well known to the target, or where the sale is catalysed by a serious approach from a qualified party. That said, it is too often the case that the second stage is simply triggered by default. An example of this would be when VCs want to exit, they hire a banker to sell the company on their behalf.”