M&A Hesitation: Banker Fears ‘Rose-Colored Glasses’ Syndrome

BY
STEVE CRIGHTON

FEBRUARY 2, 2024 – Los Angeles, CA – Aaron Solganick, CEO and Founder of Solganick & Co. was quoted in the annual 2024 “The Money Issue” as published by the Los Angeles Business Journal.

Opportunities for mergers and acquisitions in Los Angeles have seldom been more ripe, but many may end up spoiling on the vine while dealmakers hold out for a better alternative.

There was a significant decline in M&A activity last year, with some reports indicating a year-over-year decline of around 50% nationwide by the close of last year’s second quarter. Despite that fact – and the lack of any significant recovery in the year’s back half – dealmakers are optimistic in the New Year, according to Aaron Solganick, chief executive of El Segundo-based investment bank Solganick & Co.

“A lot of people went on hold and weren’t ready to run a process for all the obvious reasons” in M&A, said Solganick, including rising inflation and interest rates and an ongoing lack of liquidity.

“What we’re seeing now is that people are looking at their year-end and realizing, ‘Hey, we’re only growing 10% because of how slow this year has been, when we used to be growing 30% year over year.’ And they’re realizing they need to do an M&A transaction,’” he added.

Too optimistic?

But the biggest threat to these deals may be rose-colored glasses, Solganick said, as potential M&A targets refuse to budge for anything short of the kind of offer they would have gotten two or three years ago, when the market was far more favorable and liquidity was abundant.

“A lot of these companies that did end up going to market were still trying to lock down valuations from two years ago, from the 2021 glory days where they might get nearly double what they would now,” said Solganick.

Sensible deals ahead

Middle-market deals will likely carry M&A dealmaking this year, according to Solganick, especially in the year’s first half. As a global leader for middle-market companies, Southern California is well-positioned to reap the benefits. Solganick noted that technology companies – a leading industry for Los Angeles – have held up comparatively well in the M&A market, with roughly a third of all M&A deals made in 2023 originating from tech.

“You’re not going to see too many big flashy deals. It’s going to be deals where you don’t have to raise debt, and don’t have to worry about the interest rates too much while funding the transaction,” said Solganick.

For Solganick, who specializes in middle market M&A deals in the technology and IT services space, the future looks bright. Solganick said concerns about overregulation from the FTC and UK aren’t a problem for the companies they’re targeting for dealmaking. He said his boutique investment bank is in full-on hiring mode in order to keep up with the current dealmaking demand, with a likely uptick on the horizon.

“At the end of the day, if your company has good revenues, good profits and you’re growing at a reasonable pace, if you’ve got good financials and a good product, you’ll be able to sell your company regardless,” said Solganick. “It will be telling when the money starts to really come back, what companies the market will be focusing on.”

For the complete article go here: https://labusinessjournal.com/special-editions/money-issue/ma-hesitation-banker-fears-rose-colored-glasses-syndrome/

Solganick & Co.

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