The Chicago Smart Business Dealmakers Conference kicked off with insights and strategies for navigating the post-exit landscape, as well as speakers' perspective on a challenging M&A market.
After surveying investors and business owners this summer, UBS CEO James Jack revealed that 40 percent of those who expected to exit in five years said they wished they had sold their business a few years ago, when mergers and acquisitions markets acquisitions were hot and valuations were high.
The M&A market has been slow over the past year, says Marc Talluto, Chairman of the Board of Thirdera. This is what makes the timing of a deal so important. The macroeconomic environment, with rising interest rates driving up the cost of capital, could put pressure on a deal and cause challenges down the road.
For example, in recent years, when a company ran out of cash, there was always more money to be had, even if it didn't run a good company or wasn't careful with its expenses and wages. Now, the financials and fundamentals of the business are more in the focus of investors and potential buyers. This forces businesses to make tougher choices than they would prefer to make, as capital is less available. But that may not be a bad thing.
“In the end, that actually helps these companies make those right decisions,” Talluto says.
Doing the right things now, Talluto says, will pay off in a few years because they're running the business right and not just banking on the next influx of cash.
UBS-Wealth Management Senior Vice President Matthew Norwood says this environment can be a challenge because many companies are used to living through more than a decade of capital with almost no friction.
“To me—I'm a recovering commercial banker—8% seems a lot more normal than we've been in the last decade or so,” says Norwood.
What happened because of these higher interest rates is that the supply-demand gap widened. The cost of capital is much higher, so buyers are cutting their multiples and sellers are walking away from the table, and there hasn't been a mass equilibrium where people are coming back and shaping the market across industries, he says.
“But for every rule, there are exceptions,” says Norwood. “Deals are still being made. Good assets will definitely get an offer.”
The environment in Chicagoland is based in part on its Midwestern values—less flashy, less about the brand and more emphasis on good operational metrics, which can help companies in Chicago stand out from those building on the coasts, Talluto says. In terms of the general business environment, businesses are doing well largely because of this focus on fundamentals.
While Chicagoland companies seem to have a solid footing in fundamentals, that doesn't preclude the region's businesses from participating in areas that drive innovation.
“What's been really interesting to see is that tech capital has migrated back to Chicago from the coast, and there have been some really big success stories,” Norwood says. “Now we're starting to become more of a hub for some of the unicorn businesses that are growing.”
