Strategic Investors Take the Lead

Aalto Capital had the pleasure of attending the 2024 Mergermarket Forum in London last month, where many fascinating topics and views were discussed and debated. At this year’s event, it was mentioned that strategic investors accounted for 76% of deal flow in the first four months of 2024 – a strikingly high proportion.

What might be causing this uptick in the proportion of strategic transactions?

Perhaps there is more hesitance from private equity. After the boom of 2021, many PE firms have reevaluated their investment strategies and become much more selective and thorough when choosing investments. Many private equity players are sitting back and waiting to see how companies fair the rockier economic conditions – who hits their targets against macroeconomic headwinds, and hence who comes out on top.

On the other hand, many companies may be looking to M&A to fuel their growth as the economy has slowed. Fragmented technology and services markets in particular are seeing a push towards consolidation as a means of providing companies with a more certain route to revenue growth and increased market share.

This new trend should be considered as companies plan their fundraising strategies. Good companies will find that private equity, though more decerning, is still looking for investments with a defensible market position and strategy. This makes it even more important for companies to set realistic forecasts and focus on strengthening their cash flows.

Looking to strategic investors / acquirers may be a more certain route to capital, but it is worth noting that transactions across the board are taking longer than they have historically.

According to a survey performed by Mergermarket and SRS Acquiom in Q1 2024, 64% of respondents are finding due diligence is taking longer than it did pre-pandemic. 44% of respondents say it takes them 5-6 months to complete a deal from the initial outreach to closing. A further 22% found it was taking longer than 6 months. Companies planning a fundraising or sale should note it is better to start early and leave plenty of time to find the right investor and not just the fastest.

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