Welcome to our October newsletter.
In this edition, I will share thoughts as to the systemic risks we and our clients are facing in these uncertain times, and how paradoxically, these risks can open opportunities for our M&A advisory practices.
To all of our success!
Downside Hedging and Living to Fight Another Day
As independent investment bankers, we are always balancing the mindset that yes we are fully responsible for the success or struggles of our practices with…
…the statistical reality that market and deal conditions have a significant impact on the probability and timeline of our deals getting done.
As I discussed last month, the best among us find that balance by “playing the numbers” – the more opportunities we put into the top of the funnel the more deals will filter through and close.
As we do, we treat each and every one of those “numbers” as a client in the truest ancient Roman meaning of the word, as a person “under our protection and care.”
We do this by advising and leading them to their best possible outcomes to maximize expected value for their companies and themselves.
Of course, as market conditions evolve, so must our advice.
And whether we like it or not, we are all living and working in an era of more downside, systemic risk than perhaps ever before in any of our lifetimes.
These systemic risks are well known and include:
- Technological Obsolescence (aka AI)
- Cybersecurity (Malware, Ransomware, Data Vulnerabilities, etc.)
- Lawfare (Labor, Consumer, Regulatory / Governmental, etc.)
- Currency (aka $33 trillion in national debt growing at $1.5 trillion / year)
- Political / Geopolitical (Multiple flashpoints in a nuclear arms proliferating world)
Add these to the natural risks, uncertainties and competitive threats all businesses face (to say nothing of the personal health risks of the executives, many of whom are older), and more often now than ever, the future expected value of a lot of companies is decidedly negative.
I flag this not to fear monger, but to highlight our obligation to inform those “under our care and protection” of these risks and their potential devastating consequences.
Paradoxically, this “doomsday talk” can be good for our M&A advisory practices because:
- If a client’s business can be sold for a very reasonable multiple, as little as 3-4 times earnings and…
- The proceeds of that sale can be invested on a tax-advantaged basis into a diversified portfolio of assets subject to far less of the systemic risks as listed above then…
…the financial math is quite straightforward: Sell.
Aka get out while you still can.
(GT Investment Management’s Geoff Sokol can walk through the above math. Contact him here)
To reiterate – this is not pessimism nor doomsday negativity. It is the correct financial, mathematical advice for those under our care and protection.
Because sometimes the right game to play is to hedge on the downside.
And live to fight another day.
Happy October to all!
