Industry the June 2014 issue

Credibility Counts

Name recognition can go a long way in recruiting a seller.
By Phil Trem Posted on May 28, 2014

The list usually includes characteristics they want in a new partner (the buyer), including resources, structure/autonomy, culture, individual growth opportunity, and of course, money. A rarely discussed characteristic often overlooked by buyers is the firm’s credibility in the marketplace.

A seller gains comfort in understanding that a potential buyer knows what it is doing. We have see it is important for the seller to believe that the buyer has the ability to work through a term sheet, fairly negotiate a purchase agreement, fund the deal without issue, and pull together a communication and implementation plan to make the transition as seamless as possible. 

Despite this perception, some buyers choose not to publicize their acquisitions. They instead allow the seller to continue to operate as it had prior to the transaction and without announcing the ownership change to the public.

Many buyers spend a significant amount of time and money putting together a communication strategy to help ensure everyone in the industry knows of their deal activity. This can help create confidence in the marketplace that the buyer is a legitimate player. It can also help with notoriety when they acquire a well-respected firm.

Each seller has to determine which strategy bests suits them. However, buyers need to be aware that as multiples continue to hold at a high watermark, everything matters when sellers are trying to differentiate between their options.

A total of 96 deals have been announced through April—at least those are the ones that have been publicly announced. This is the second-highest four-month total in the last 10 years, behind only 2008, which had 103 transactions. It also far exceeds the 57 deals during the same period in 2013. The well-known buyers continue to lead the pack, with the top five combining for 35 deals or 36.5% of the year-to-date activity. This includes AssuredPartners (12), Arthur J. Gallagher (7), Hub International (6), Marsh & McLennan Agency (4), USI (3) and Cross Insurance (3). 

What is interesting this year is that 37 buyers have only one transaction. Of that group, 17 are first-time acquirers—or at least they are first-time announced acquirers. It is possible they have completed transactions in the past but never publicly disclosed them.

This year, 37 buyers have only one transaction.

Regardless of the post-acquisition communication approach, we believe that buyers need to understand they continue to operate in a very competitive marketplace. Demand continues to be a big driver. In this type of stressful marketplace, buyer credibility can go a long way for a seller trying to determine what life would be like when they no longer own the business. A smooth deal and integration likely won’t be the top priority on a seller’s list. That said, it is still important and could end up being the difference between being the chosen party and moving on to the next opportunity.

Phil Trem President of Financial Advisory, MarshBerry Read More

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