How an M&A Advisor Can Help You Conduct a Market Analysis
Dani Sherrets, M&A Manager
August 22, 2023
In the world of mergers and acquisitions (M&A), conducting a thorough market analysis is essential to the transaction’s success. Simply put, a market analysis is a comprehensive study of an industry and its M&A landscape. It evaluates the deal trends and the underlying macroeconomics, assesses the financial performance of the companies in the space involved, and helps gain insights into the competitive environment. Having the right market data can mean the difference between closing a deal at the right price or missing out altogether.
Understanding Company and Market Dynamics
Before diving into the specifics of a market analysis, it's important to understand the broader dynamics of the company and the market it operates in. M&A advisors start by conducting a preliminary assessment of the target company's financials, including:
This analysis helps determine the company's value and attractiveness to potential buyers.
In addition to the financial analysis, M&A advisors also consider the industry and market conditions. They examine industry trends that may impact the target company's future prospects, such as emerging technologies, regulatory changes, and consumer preferences. Understanding these dynamics allows advisors to identify opportunities and risks associated with the market, helping clients make strategic decisions.
Preliminary Valuation Analysis and Considerations
Valuation analysis is a critical component of market analysis in M&A transactions. M&A advisors utilize various methods, such as public and transaction comparables (comps), to determine the value of the target company.
Public comparables analysis derives an indication of value by using the stock prices of publicly traded companies and applying their multiples to the subject business.
Transaction comparables analysis estimates the implied value of a company by analyzing the recent acquisition prices paid in comparable transactions.
M&A advisors consider several factors during the valuation analysis, including revenue growth, profitability, market share, and synergies with potential buyers. They also take into account the current market conditions and the overall economic outlook. This comprehensive valuation analysis helps establish a realistic and fair value for the target company, setting the stage for successful negotiations.
Industry and Market Analysis
To gain a deeper understanding of the target company's market position, M&A advisors conduct an industry and market analysis. This analysis involves examining industry trends, competitive dynamics, and market opportunities. By studying the industry landscape, advisors can identify potential buyers or targets that align with the client's objectives.
During the market analysis, M&A advisors gather data on market size, market share, growth rates, and customer demographics. They also analyze the competitive landscape, evaluating the strengths and weaknesses of competitors and identifying any potential threats or opportunities. This information helps clients make informed decisions about potential buyers or acquisition targets, as well as devise effective strategies to maximize value.
M&A Process Considerations
While conducting a market analysis is important, it's to be remembered that it is just one component of the broader M&A process. M&A advisors play a critical role in guiding clients through each stage of the transaction, from due diligence to deal execution. They leverage their market analysis insights to help clients develop an acquisition or exit strategy that aligns with their goals and objectives.
Throughout the M&A process, advisors assist in preparing the necessary marketing documentation to strategically market the company, identifying prospective buyers or targets, and managing the due diligenceprocess. They also provide guidance on deal structuring and valuation, ensuring that clients secure the best possible terms and conditions. Furthermore, advisors coordinate the closing activities, overseeing the drafting and negotiation of the purchase agreement and facilitating the smooth transfer of ownership.
Contact us to discuss how our M&A servicescan add value to your next transaction or if you have any questions about the market analysis process.
Dani Sherrets is an M&A Manager at Lutz. She began her career in 2014. Dani is responsible for supporting the execution of merger and acquisition transactions and business valuation services. She assists clients across various industries with valuation analyses, financial modeling, industry research, transaction materials, and due diligence related to M&A engagements.
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