Dealmaking has become a part of the playbook for companies competing in the market today. Buying and selling companies and raising growth capital are increasingly on the minds of business owners. More and more, M&A is being woven into strategic plans — sometimes from the start — as a means of growth.
“I do not think there is any company that reaches a point where they've attained such a level in the market that they can quit worrying about having to change,” says Jerry Johnson, managing director and Nashville market head at UBS. “Companies are constantly having to think about the future to adapt and thrive in the future. You can't rest on your laurels. And from that end, M&A is just one of the places you turn.”
Jerry Johnson isn’t alone in that feeling. Smart Business Dealmakers spoke with entrepreneurs, investors and the advisers who handle transactions every day about the role of mergers, acquisitions and dealmaking in business today.
The consensus: Business owners can’t afford to ignore M&A — even if they’re not actively looking to buy or sell. That’s because competitors are out scooping up a new technology, diversifying into new geographies, raising growth capital, and implementing long-term exit plans that help them run their companies better.
Here’s what some of Nashville’s top dealmakers had to say.
"An Exit Is On Everybody's Mind”
Martin Renkis founded Smartvue Corp. in 1998, running it for 20 years before selling it to Johnson Controls in 2018. Now head of Cloud Solutions and Global Security Products at Johnson Controls, he says he’s noticed M&A is more on the minds of his CEO friends today than it has been in the past.
“I think that an exit is on everybody's mind,” Renkis says. “They may not be saying, ‘I'm doing it right away,’ but they are planning for it, they’re thinking about it and they're investing time and effort into it. So, I think that's now a part of building your business as much as almost anything.”
“It's definitely on their minds,” adds John Cerasuolo, president of ADS Security, which was recently acquired by a strategic buyer. “The conversations about those kind of things are — even more today than in the past, even if the deal activity is probably down some — everybody's worried about that and thinking about what they need to do to prepare.”
Tammy Wolcott, CEO of LBMC W Squared, finds that M&A is top-of-mind with executives and business owners, even by some in companies that she never thought would consider a sale.
“I think they're thinking about it on the front end now, not so much because they want a big payoff at the end but they are thinking about succession planning,” Wolcott says. “They're starting to seek advice about potential sales and people are just more Informed than they used to be about what the opportunities are to sell a business.”
The Opportunity To Scale
It’s not hard to find examples in recent history of companies that ignored signals to pivot when technological changes threatened product lines and strategies. In some cases, a merger or acquisition might have given some companies new life, a new chance with new teams that have new ideas to drive innovation.
“Large companies are built to scale,” Renkis says. “Small companies are really built to innovate — that's just in their blood and that's what they do.”
The M&A landscape, he says, is being shaped essentially by the relationship between large companies, which are trying to find the next opportunity to scale, and entrepreneurs and innovators, who are trying to determine the next step for their companies.
“It's not just about the money,” Renkis says. “It's people who are thinking about their organizations and their companies saying, ‘What's the next step? What's next for this company and what does the future look like?’
“Certainly, having a payday is a big part of that. But I think from the smaller company side, they're like, ‘What's next? Where do I go after I reach the point where either I'm not going to scale myself, I don't have that skill set or I don't have the capital?’”
M&A As Strategy
UBS’ Johnson says business owners are increasingly incorporating M&A into their strategies — it’s something they’re thinking about in real and tangible ways.
“You constantly have to be thinking about what you need to acquire,” he says. “What piece you need to sell, what piece needs to be more efficient, should we merge, are we going to need more scale? You’ve got to be constantly thinking about the idea that will make the future for your organization.”
Eric Johnson, Dean of Vanderbilt University - Owen School of Management, says that having a working knowledge of M&A can be a benefit to businesses.
“I think that it allows them to think about a strategy for their business,” Johnson says. “Even if that isn't one they want to pursue, typically many of the things that you would need to be successful in closing on a sale of your company through M&A are things that are generally good for the business overall — better financial controls, better management of cash and better overall financial understanding of the business model.”
“One of the things we're seeing now — and especially in certain industries where margins might be getting affected — we see a lot of companies looking at the need for scale, the need to bring more efficiencies in and in that case that's where M&A is very helpful to them,” Johnson adds.
Companies can be helped by firms that don’t just specialize in M&A, but firms that have had success advising businesses in an owners’ specific industry. They should be able to share success stories — what specifically helped companies achieve their goals that maybe they hadn’t yet considered.
“M&A firms don't just bring investment capital,” UBS's Jerry Johnson says. “They bring what may be even more important. They bring a lot of intellectual capital and experience and stories that they can share about peers — here’s what we did with this one and here's how that worked. And I think that's what CEOs are looking for, somebody that really has a knowledge of their business and their industry and that can bring not just financial capital but also some intellectual capital to help them make the decisions necessary to tackle all the changes that are going on in so many of the industries.”
Cerasuolo says there’s an enormous amount of value that can be generated with a thoughtful process of growth through acquisitions, particularly if it's integrated with a strong culture around organic growth. He’s currently living that strategy, having led ADS through more than 20 acquisitions during the past five years, which he achieved through an internal dealteam built to handle the volume.
If I'm a CEO out there, I'm going to want to hear what's going on elsewhere,” Jerry Johnson says. “Some of the M&A firms that out there have been involved in that have really good examples of, here's what this company did or here's the direction this went. And if I'm running a business, I want to know that. I want to know what's out there that's available to me to better my company, the employees of that company, the whole works.
"That's really what they bring, just that experience. That’s where finding M&A firms that have the experience in that particular industry segment where they know the buyers and sellers around the market, where they've had experience, that's really helpful.
"Capital is one thing," Johnson says. "But combined with intellectual capital, that's where it's really most important for CEOs and business owners.”