7 Mile Advisors recently hosted our 7th annual ACCESS Conference in Charlotte, NC. The annual event brought together a variety of thought leaders sharing their experiences on M&A trends from multiple lenses – including private equity investors, strategic acquirors, and private wealth managers. 

7 Mile Advisors Managing Director, Jeff Stoecklein, had the opportunity to sit down with two leading corporate development professionals to discuss the key factors that play into transacting a successful strategic acquisition. Stoecklein was joined by Kevin Barnes, Senior Vice President of Corporate Development at Premier, and Ben Newman, Chief of Strategy & Corporate Development at EN Engineering. Although their investment focus originates from two vastly different sectors (Healthcare and Engineering), throughout their discussion they proved there are several overlapping factors that play into a successful acquisition, no matter the industry.

So, what are the qualities and factors a company should focus on in advance of exploring a strategic acquisition?

1. Maximize Cost and Operational Efficiencies

Acquirers want to see upward driving margins, as it is a sign of value added to your clients. Barnes emphasized as they evaluate companies, they seek companies with margins in line with market expectations. Margins of 40%+/- are ideal and indicative of scale, utilization management, and strong bill rates.

2. Strong Financial Profile and Controls

Newman stressed that it would be hard for an acquirer to pursue a business that wouldn’t be accretive from a financial perspective. Acquirers like to see healthy revenue growth historically at rates of 10-20%. Further, recurring revenue is a desirable metric amongst strategic acquirers and investors, establishing credibility and stability to projections for the years to come. You’ll also want to perform the proper analysis to ensure all of the numbers are in line. A solid accounting system along with audited, reviewed, or compiled financials are always a plus while a QoE during diligence is being considered.

3. Experienced Team and Good Company Culture

Leading up to a transaction, continue to build and incentivise your senior management team, ensuring you have a solid 2 to 3 layer bench, and low reliance on any one person. Within a professional services business, there is nothing more than the experts that show up day to day to provide value to customers. Recognition as a great place to work, and a consistent set of values for how people conduct themselves on a daily basis, all credit to creating a positive reputation.

4. Mitigate Client Concentration

Client concentration and a low number of decision points can be a concerning statistic for potential acquirors who are looking for strong relationships across a wide client base. It’s important to review the distribution of your client base and determine whether customer concentration could be a glaring issue before you enter into a sale process. Best practices are to avoid heavy concentration from only a few clients, with no one customer representing more than 15% of total revenue. 

5. Historic Evidence of Hitting Goals

Executives looking to transact should be prepared to show historical business plans against business performance. Having a business plan and growth projections is important, but more so are the actual results. An unrealistic business plan is useless to executives and investors alike, and can be a red flag for potential partners. Investors want to know prior to a transaction that they are inheriting a team capable of not only developing a thoughtful business plan, but executing on it. 

6. Vision for the Company

Acquirors want to see that current management has a thoughtful business plan in place. According to Newman, one of the most critical factors in differentiation for a company is analyzing the alignment of the company’s strategic plan and vision with their own. Barnes added that presenting a vision for growth is most important to them right now as they are evaluating companies. Acquiors want to know how you are currently making investments to drive growth and what further investments are needed. Remain focused on your current expertise while showing growth and a vision for the future of your offerings. 

Stoecklein then asked what advice would you give to companies exploring an M&A transaction? 

1. Hire The Right Advisors 

Barnes and Newman both agreed hiring an M&A banker makes the transaction process much less strenuous for the company, keeps the process on track, and ensures all of the diligence is done in the right places. 

2. Be Honest

When exploring a transaction for your company you want to be as transparent as possible as to what your motives are for selling the business. Whether the key leadership team will remain in the business plays a large role in motivations for a transaction, and is something buyers will want to know from the start. It’s important that all members of leadership keep a consistent story throughout the transaction process, as buyers will certainly be asking and comparing answers. 

About the panelists:

Kevin Barnes is Senior Vice President of corporate development at the Charlotte headquartered NYSE company Premier Inc, which is a healthcare improvement company uniting an alliance of approximately 4,000 U.S. hospitals and health systems and approximately 165,000 other providers and organizations. He has over 20 years of leadership experience both as an active duty military officer and business leader, the last 9 years focused on healthcare. His work has centered on mergers and acquisitions, complex partnerships, joint ventures and facilitating other creative business structures and combinations. Prior to his healthcare experience at Premier, he worked as a military officer, lawyer, investment banker, private equity investor, and chief operating officer of a payments company. 

Ben Newman is currently the Chief of Strategy and Corporate Development at EN Engineering, which is an energy-focused engineering, consulting and automation firm currently owned by Kohlberg & Co. In his role, Ben leads the sourcing, execution and integration of all M&A, as well as help drive the strategic planning and implementation process within EN’s business units. Prior to his current role, Ben was the Vice President at Blue Point Capital Partners, a top decile mid-market PE fund primarily on the manufacturing, distribution, and business services industries. 

Jeff Stoecklein is a Managing Director at 7 Mile Advisors with over 30 years of experience working with middle market and large sized companies. Based in Chicago, he leads our Healthcare and Life Sciences Technology and Services Industry Practice. Previously Jeff spent 17 years at Navigant Consulting, Inc. a global consulting and business process management firm, where he led the corporate development team and advised Navigant on over 90 transactions.

About the Access Conference:

The 2019 7 Mile Advisors Access conference was hosted in Uptown Charlotte, NC at the Mint Museum. This annual, invitation-only event brings together owners of the highest quality Business Services and Technology companies with premier strategic buyers and private equity sponsors for two days of dealflow, education and relationship building.

About 7 Mile Advisors:

7 Mile Advisors provides Investment Banking & Advisory Services to the Business Services & Technology Industries globally. 7 Mile Advisors advises on M&A and private capital transactions, and provides market assessments and benchmarking. As a close-knit team with a long history together and a laser focus on our target markets, 7 Mile Advisors helps its clients sell companies, raise capital, grow through acquisitions, and evaluate new markets. For more information, including research on the M&A markets, visit www.7mileadvisors.com.