Do Mergers and Acquisitions Create Value?

Mergers and Acquisitions Create Value for Both the Seller and the Buyer.

In order to create a detailed and actionable response from the seller’s perspective—and provide guidance on creating and maximizing value in an M&A transaction—let’s first define value in two parts.

Quantitative Value

In the case of mergers and acquisitions (M&A), quantitative value mainly refers to the fair-market value of the selling company. This is solidified in the last phase of the M&A process, which includes final negotiations where both parties and their legal teams resolve price discrepancies, contractual issues, and potential liabilities. Assessing and communicating your financial goals to your M&A advisory team early on will aid in creating true value from a transaction and attaining the net proceeds required to achieve your desired level of financial security post-close.

Qualitative Value

In many cases, developing an exit strategy by utilizing M&A can be an emotional decision as well as financial, notably with family-owned businesses or companies exhibiting a familial culture.  Qualitative value speaks to the unquantifiable transactional goals which can include, but are not limited to:

• Improving work-life balance
• Anticipating retirement
• Ensuring the legacy of the business by defining a successor
• Defending against heightened competition within the sector or industry

Assessing the qualitative value creation from an M&A transaction is by nature more subjective, and often underestimated in the initial planning stages of an M&A event. Taking inventory of your end goals whether they are financial, strategic, or a combination, can serve as that initial step in determining the value M&A would add to your company.

Finding a Buyer That Aligns with Your Goals

Understanding the different types of buyers in the market is an important bridge between a company’s end goals and the materialization of a befitting M&A transaction. In short, a strategic buyer looks at target companies, in a similar or adjacent industry, in order to promote growth. A financial buyer seeks to acquire a company as an investment in hopes of a favorable return. Both types of buyers view the prospect as a value-add to their end goals.

Read more about the types of financial buyers in our article: What Type of Financial Buyer is Right for Your Business?

M&A Advisory Involvement

Determining the value-creation potential of M&A to your company is not intended to be a reclusive exercise. Speaking to an advisor with industry experience is strongly suggested as they will be your most crucial asset through the process of optimizing both quantitative and qualitative aspects of your transaction.

To get you started, here are a few frequently asked questions answered by Capstone Partners.

FAQ’s

Can I speak with an advisor even if I am unsure about M&A being the right choice for my company?

Yes. Starting the dialogue sooner rather than later is always the best practice when seeking assistance from our M&A Advisory teams, and the process of maximizing value from an M&A transaction starts years before going to market.

Read more on starting the process in our piece: How to Prepare Your Business For Sale.

How do I optimize both quantitative and qualitative aspects of a M&A transaction?

Capstone’s M&A Advisory teams work to ensure that both parties have a shared DNA and enter the contract in good faith for maximum optimization of your market value and post-close considerations.

Our full-service nature and deep sector expertise allow us to tailor our solutions to meet your evolving needs through every stage of your company’s lifecycle.

How will I know what to expect from Capstone Partners acting as my M&A Advisory team?

Upon request, Capstone will arrange introductions with past clients for them to share their experience with you personally.

In addition, visit our Client Testimonials page to hear directly from our former clients.

To continue the conversation with an expert, you can contact us for advice here.

Note: This piece was originally published in May 2021 and was most recently updated in February 2024.