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It seems that M&A with publicly traded companies is way more complicated than privately owned businesses. What are the common obstacles or areas to be extra mindful when conducting M&A for private company?
I think the most important aspect where due diligence should pay much attention in a privately held target company is the exact involvement of the shareholders and relations with the company. Debtors and liabilities should be carefully checked during the due diligence phase by experts to see of there are any debts of or liabilities to the shareholders. Apart from that, a proper due diligence in all fields should take place and be more careful and scrutinising than in a pyblicly listed company as public companies tend to be more transparent.
I think private company M&A has several unique challenges too. The biggest difference that comes to mind is lack of transparency compared to public companies. Without publicly available financial data, due diligence becomes trickier. Also, valuation can be more subjective without the market’s pricing signals.
In my experience within engineering and utility, I’ve noticed a lot of private M&A is primarily strategic instead of simply “buy low, sell high.”
For example, 1 transaction I witnessed was a PMO firm Purchasing another in an effort to become a prioritized vendor for a major utility client. The purchasing company was national but did not have a strong presence in the South East, which they made up for when they acquired a small competitor who had a framework with a major utility in the region.
Another example, A PMO firm purchased a small IT consulting agency, in an effort to hire the owner. They previous owner is now the Chief Technology Officer for the firm.
In private M&A, I’ve often seen smaller companies purchased “for parts” instead of a positive ROI
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