Mergers and acquisitions (M&A) are a powerful tool for corporate growth and business succession, but their success depends heavily on the timing. If you get it right, you can get a high evaluation and favorable terms, but if you get the timing wrong, you may not be able to find the right partner or terms, and in the worst case scenario, you may even have to go out of business.
❗ Four important points to consider when deciding the timing of M&A
Successful M&A comes when several key factors come together. Here are some things to keep in mind:
⏰ 1. When the manager is physically and emotionally strong
Some people believe that the best time to start M&A or business succession is when you don't want to sell . This is because companies that are in a growth phase , with increasing revenue and profits every year, are naturally attractive to buyers. Not many companies are willing to acquire a company whose performance is declining.
Furthermore, the process of considering and executing an M&A usually takes six months to a year , and in some cases even longer. It is difficult to get through this long process once your physical and mental strength and energy have declined. The key to taking over on favorable terms is to start moving when you feel like it might be a little too early , so that you can approach the process with ease in mind and body.
📈 2. When the company is doing well
Strong current performance is a strong indicator of future profitability, and buyers see companies with consistent profitability as having growth potential and are therefore more likely to offer higher acquisition prices.
- An example of bad timing : A situation where sales are sluggish and operating losses continue, with no prospect of recovery in performance.
- An example of a good time to do this : Before a significant decrease in profits is expected due to external factors such as compensation revisions, even though there have been no changes in financial conditions or management. Don't be complacent just because business performance is good; always be on the lookout for changes in the environment .
📊 3. When industry restructuring begins
When momentum for industry restructuring (a major change in the industry's power structure) is building, many buyers and sellers gather in the market, and the market becomes lively . Restructuring movements are often triggered by legal reforms (e.g., amendments to the Insurance Business Act, Pharmaceutical Affairs Act, and Worker Dispatching Act), technological innovations (e.g., the rise of AI technology), economic and social changes (a declining birthrate and aging population, changes in lifestyle), etc.
If you miss this wave, you run the risk of not being able to find a buyer or your terms becoming stricter. It is important to regularly gather information about your company's industry and be prepared to act quickly if you detect any major developments .
🧭 4. When the economy and economic situation are good
During a booming economy , potential buyers tend to be more proactive in M&A because companies are performing well and cash flow is strong. As potential buyers compete with each other, it becomes easier to get a high valuation for a company , and it becomes possible to choose a partner with favorable terms from a larger number of candidates.
However, good times don't last forever. When the economy enters a recession, buyers become more cautious, the balance between supply and demand reverses, and you may be forced to negotiate on unfavorable terms. It is important to keep a close eye on economic trends and consider combining this with a time when your company is in a good position .
💡 5. When the CEO has a clear idea of what they want to achieve through M&A
M&A is not simply the sale of a company, but a part of a business strategy . Having a clear objective (e.g., resolving succession issues, further business growth, entering a new market) is extremely important for smooth negotiations and ensuring that the buyer correctly understands the value of your company.
If your objectives are unclear, you may find yourself lost in selecting a buyer and negotiating terms, and you may not achieve a good result. First, dig deep into the significance of M&A for your company .
📋 The Importance of Timing and Judgment Indicators
The table below summarizes important timing when considering M&A and the indicators to use at each stage.
| Timing Classification | Decision criteria and considerations |
|---|---|
| Manager's condition | Are you physically fit and motivated? / Health condition / Retirement plan timing |
| Company performance | Are sales and profits strong? Is the financial situation sound? Future growth prospects |
| industry environment | Are there any trends in industry restructuring (legal reforms, new technologies, etc.) / Trends of competitors / Market growth potential |
| Economic environment | Current economic situation / interest rate level / stock price trends |
| Strategic Management Objectives | Clarifying the purpose of M&A (business succession, growth strategy, etc.) / Conditions required of buyers |
🚀 Three guidelines to ensure you don't miss the perfect M&A opportunity
There are things you can do on a daily basis to ensure that good timing arrives and you don't miss it.
- Get moving early and start preparing : Expect it to take an average of six months to a year to complete an M&A transaction. If you keep saying "I'll do it someday," you won't be able to act when the time comes. It's a good idea to start gathering information and consulting with experts when you think it might be a little too early .
- Always strive to increase the value of your company : Maintain a healthy financial position and make efforts to improve your profitability . An attractive company will have a better chance of finding a buyer, even in a tough industry environment.
- Get the advice of experts : M&A intermediary firms, financial advisors, tax accountants, lawyers and other experts have a wealth of experience and market information . By getting objective opinions rather than sticking to your own judgment, you can be a great help in determining the best timing and partner.
⚠️ Timings to avoid and common misconceptions
- "I'll sell when I'm a certain age" : It's dangerous to base your decision solely on age. By the time you reach that age, the company's performance and the market environment may have deteriorated. Always make a comprehensive decision based on the company's and your own situation, as well as the market environment .
- Once business performance begins to clearly decline : If business performance continues to decline, buyers will become concerned about the future prospects and the appraisal will drop sharply. It is important to start considering a purchase while business performance is good .
- After the industry consolidation or boom times are over : Once the industry consolidation has progressed to a certain extent or the economy enters a recession, buyers become more cautious and their options and negotiating power are significantly reduced.
💎 Summary: The best timing for M&A is "comprehensive judgment"
The best time for M&A is when the management's own physical and mental state, the company's performance, the industry environment, the economic situation , and above all, the management's own clear objectives, all coincide.
The paradoxical idea that " the best time to consider selling is when you don't want to sell and when business is going well " can also be an important guideline.
It is important to take all these factors into consideration, start preparations even before you feel it is too early , and seek expert advice so that you can make the best choice for your company, your employees, and the future of your business.
コメント