Financial Implications Of Mergers

CEOs love M&A deals. When they work, 1 + 1 = 3. But here’s the catch: they rarely do. 90% of mergers and acquisitions fail. They promise synergies, scale, and transformative growth. But what they deliver is: - Overpriced valuations that bleed cash - Cultural clashes that drive talent away - Integration chaos that derails operations - Missed synergies that remain nothing more than promises The result? Most M&A deals destroy value instead of creating it. Why does this keep happening? Because M&A is treated as a flashy shortcut to growth— When it’s really the most complex and risky move a company can make. Get my 150 point M&A Checklist and learn to maximize deal success: https://bit.ly/3ZBtRUt Here’s why most deals fall apart: 1️⃣ Strategic misalignment Too many deals chase growth, not value. ↳ Targets don’t align with the acquirer’s core strengths or strategic goals. ↳ What you get is friction, not synergy. 2️⃣ Overpaying for potential In the heat of the deal, discipline disappears. ↳ CEOs pay a premium for hype, locking in underperformance ↳ What you get is a fast track to failure. 3️⃣ Synergies that never materialize Synergies sell the deal, but they rarely show up. ↳ Cost synergies underestimate complexity. ↳ Revenue synergies overestimate market realities. ↳ Without a detailed execution plan, synergies stay on paper. 4️⃣ Cultural Clashes Merging two companies means merging two cultures—and that’s where things get messy. ↳ Misalignment drains morale, causes talent to flee, and stalls progress. ↳ Cultural diligence should be as rigorous as financial diligence. 5️⃣ Integration Failure Integration is the graveyard of M&A deals. ↳ CEOs treat it as an afterthought instead of a priority. ↳ No detailed plans. ↳ Limited resources. ▷▷▷ What all this means for CEOs M&A isn’t a shortcut to market dominance—it’s a calculated risk. To win, you need: ↳ Strategic alignment: Align every deal with your core goals. ↳ Cultural alignment: Treat culture as a make-or-break factor. ↳ Grounded synergies: Build plans based on operational reality. ↳ Integration planning: Start before the deal is signed, not after. ↳ Valuation discipline: Walk away when the price doesn’t make sense. ↳ Appropriate financing: Align financing structures with cash flow patterns Remember: Most deals fail because they skip the hard work in favor of the headlines. M&A isn’t magic. It’s not 1 + 1 = 3. It’s strategy, execution, and discipline. If you’re not ready to play that game, you’re better off not playing at all. ▷▷ Want to learn to connect business objectives with finance strategy and drive results? Start here: https://bit.ly/3Owa5U4 Like, Comment, and Share if this was helpful. And follow Oana Labes, MBA, CPA for more.  

A market does not consolidate by 50 percentage points in 15 years on its own. In 2010, around 75 percent of US physicians worked in private practice. Today, the figure is closer to 25 percent. Most of us have treated that shift as inevitable. It was not inevitable. It was engineered. Neurologist Scott Tzorfas walks through the mechanics on The Podcast by KevinMD, and the mechanics are clean. Hospitals are paid two to three times more than independent practices for the same office visit. For echo and MRI, three to five times more. The labor is identical. The price is not. Layer on the regulatory load. MIPS and MACRA pulled clinicians off patient time and onto data entry. The 2013 Misvalued Code Initiative cut office-based procedure reimbursements by more than 50 percent while hospital-employed physicians were largely shielded. Layer on prior authorization. A small practice now runs roughly 40 prior auths a week. Generic medications that needed no approval five years ago now need it. Most denials come from algorithms, not from a specialist who can override. The result is a workforce that consolidated upward and a population that waits six to nine months for a specialist, longer at the academic centers. Three lessons for any leader watching their own field consolidate. One. When small operators leave, capacity does not transfer. The line gets longer. Two. When pricing is asymmetric for the same work, the market is not failing. It is responding to a signal you set. Three. The fix is not exhortation. It is reversing the incentives. Site-neutral payment, equal regulatory load, and tax treatment that recognizes small practices as the small businesses they are. The next leader who says "we tried to keep them, they just left" should be asked which incentive they reversed first. Search "The Podcast by KevinMD" wherever you listen to podcasts. Which incentive in your industry has quietly consolidated power away from the people doing the work? #ThePodcastbyKevinMD #HealthcareLeadership #PrivatePractice #PhysicianBurnout

Big Four firms don’t usually sell their backbone. But KPMG just did. And it’s going to shake up how India fits into global delivery. KPMG US and KPMG UK have jointly acquired a 33% stake in KPMG Global Services (KGS) from the Indian partnership - for a reported $210 million (~₹1,800 crore). This marks the first-ever divestment of a Big Four captive in #India. Let that sink in. KGS was KPMG India’s crown jewel - a 14,000+ people-strong global delivery engine supporting 50+ countries in audit, tax, consulting, and tech. But here’s the twist: - KPMG India now loses operational control. - KPMG US / KPMG UK take over strategy and leadership. - And India, in return, gets cash. Short-term win? Definitely. But long-term? A double-edged sword. With global projects routed via KGS, KPMG India now forfeits its future revenue streams from this strategic asset. Yes, the ₹1,800 crore could: ▶️ Plug attrition gaps by boosting partner payouts ▶️ Fuel capability building ▶️ Help them compete with EY, Deloitte, PwC But in the process, they’ve traded long-term annuities for upfront liquidity. From the lens of an M&A professional, this feels like: “Selling your fastest-growing subsidiary to fund immediate restructuring.” Will it pay off? Only time - and margins - will tell. #india #big4 #kpmg #ey #deloitte #pwc #stake #accounting

We are about to see a wave of PE capital flood into the legal sector. The plumbing is already in place. The management services organization structure splits a firm in two: a lawyer-owned entity that gives the advice and a separate services entity holding the back office, the tech, the IP and the brand, which outsiders can own outright. The practice pays a fee to the services company, non-lawyer ownership rules stay technically intact. Capital gets in anyway. Holland & Knight LLP closed 17 of these deals by mid-June with a pipeline north of 100 behind it. Per the Financial Times, Paul Weiss has taken a pitch from New Mountain Capital, Quinn Emanuell has spoken to Guggenheim, Proskauer Rose LLPr has met at least one buyout group and White & Case LLP has senior lawyers examining the structure. As one adviser put it, "everyone is interested, but everyone wants to go second." The logic is obvious. Firms are running an arms race for rainmakers and an AI capex cycle at the same time and a partnership is a terrible balance sheet for funding either. You cannot ask equity partners to defer distributions for a ten-year technology bet. You can ask a sponsor to. But here is what makes legal harder than every professional services vertical PE has already rolled up and I do not think the sponsors have fully priced it. More so than in most other services businesses, when you buy into a law firm, the client is attached to a person. Not the brand, not the platform, not the intake system. A person, who can put their coat on and take a $40m relationship with them. It is the most relationship-dependent service there is and it is the reason lawyers take home more of the cash they generate than almost everyone else in professional services. It’s uniquely producer led. And unlike almost any other industry, you cannot contract your way out of that. Professional conduct rules across the US effectively prohibit agreements that restrict a lawyer's right to practice after leaving a firm, which means the non-compete and the meaningful non-solicit, the two instruments every other PE roll-up in professional services relies on to protect enterprise value, are essentially unavailable here. What you get instead is a notice period, some garden leave and hope. By normal sponsor underwriting standards that is an extraordinary risk profile: high revenue concentration in a small number of individuals, near-zero contractual restraint on those individuals and a competitor set actively paying nine figures to poach them. The irony is that the MSO structure is being pitched as the solution to the very problem it creates, because unvested equity becomes the only handcuff left in the building. Which is why the question is which firms can survive the diligence. If your revenue sits with twelve people and none of them are contractually restrained all you are really selling is a lease on twelve careers. And the best people always work that out faster than you think.

Private Thoughts From My Desk……………. #35 Private Equity purchase multiples haven’t moved much recently. But the math on returns has. Deals today are getting done with a lot more equity—about 2.8 turns more than before interest rates started increasing in 2022. And, when I ran the numbers through a generic model, here’s what hit me: At a 15x entry multiple of EBITDA with 7x debt at 6%, you need 65% EBITDA growth to hit a 20% gross IRR over a five-year holding period. That’s a 10.5% CAGR. But drop leverage to 4.2x, pay 10.3% on the debt? Now you need 97% growth—14.5% CAGR—for the same return over the same period (see chart below). So, the question isn’t whether deals still work. It’s how hard you're willing to work to make them work as a buyer. Time to dust off the full potential playbook—and actually use it. Also, a good time to remember that the margin expansion part of that playbook has contributed almost nothing to average deal returns over the past decade. To double EBITDA in five years, highly profitable growth is the formula.

If Revenue grows but cash doesn’t there’s a deeper problem Topline is up The business looks like it’s scaling But then you open the balance sheet > Receivables are piling > Inventory is ballooning > Payables haven’t moved And suddenly, net working capital has grown faster than revenue Here’s why that’s a red flag: 1. Growth should create cash, not consume It If revenue grows 30%, but NWC grows 50% - you’re funding sales with cash, not customers It’s not growth. It’s capital erosion 2. NWC growth > Revenue growth = Efficiency leak It means: > Customers are paying slower > Inventory is being managed poorly > Vendors aren’t giving credit This hurts free cash flow and impacts ROCE 3. P&L won't show it Margins may still look fine But your CFO is breaking Good businesses scale revenue without bloating NWC Topline is ambition But working capital is discipline

The Everest - AIG deal is more than a $2B transaction. Everest is exiting retail commercial insurance after a devastating 138% combined ratio and $1.7B in reserve charges. Meanwhile, their reinsurance segment? A profitable 87% combined ratio. AIG is acquiring $2B in premiums without deploying capital or inheriting legacy liabilities. It's opportunistic growth at its finest. The message is clear: The middle is collapsing. Wholesale and E&S markets are crushing it with 88% combined ratios while growing 13-21% annually. They're projected to reach 25% of all commercial premiums by 2026. Traditional retail? Facing commoditization, margin compression, and a relevance crisis. The industry is bifurcating into two camps: → Digital-first commodity retail → High-expertise specialty underwriting Carriers trying to be everything to everyone are getting squeezed from both sides. The winners? Those making bold strategic choices NOW, not preserving optionality across fragmenting markets. I wrote a deep dive analyzing what this transaction reveals about where insurance is heading and what it means for carriers, brokers, and professionals navigating this transformation. What's your take? Linked here: https://lnkd.in/eMGSDyGN #Insurance #InsurTech #CommercialInsurance #Strategy

Two trends have caught my attention and signal a growing trend in the M&A landscape: the rise of equity-funded deals and improving market reaction to M&A.   With valuations at record highs and range-bound interest rates, the cost of equity and debt are converging. Consequently, I’m seeing more boards contemplate equity considerations alongside debt funded cash considerations as a genuine alternative to all cash — enough to push equity-funded deals to 23% of total activity, up from 18% a year ago. It is also notable that this consideration mix is evident in large-scale transactions, with $10bn+ deals making up a larger proportion of M&A volumes this year.   Market and shareholder dynamics are also shifting. In 2022, the median day-one share price move for acquirers in large equity deals was -5.3% relative to the market. This year, it’s closer to -1.5%. For shareholders, ownership is increasingly concentrated among a smaller number of institutional investors, amplifying their influence on deal outcomes. Together, these trends underline: ▪️Day one isn’t destiny. There’s no clear link between the first day’s move and long-term returns – around half of deals see a negative day-one reaction, yet many go on to deliver positive three-year share price performance. ▪️Shareholder makeup is also an important factor. Greater ownership concentration among the largest index investors can amplify share price volatility. Early alignment with key active investors is critical. ▪️Messaging matters. The way a deal is communicated, before and after announcement, can materially shape sentiment, reduce activist risk, and secure shareholder support. This is critical to an effective roll-out strategy. As we head towards Q4, I expect the strongest M&A outcomes will come from a combination of disciplined execution and a compelling strategic narrative.

Rock and a Hard Place 80% publicly listed BDCs are currently trading at a discount to their NAV. BDCs are required to distribute at least 90% of their taxable income as dividends, which limits their ability to retain earnings for growth. If the share price is below NAV, issuing new shares becomes dilutive to existing shareholders, so funding new loans is limited. For sub-scale BDCs, this creates a difficult dilemma: they face limited ability to grow and participate in new lending opportunities. In such cases, managers often find themselves caught between a rock and a hard place. Including the large quarterly dividends (average payout rate is 11.7%) y-t-d performance is negative for 2/3rds of BDCs as shown in the chart below: negative 7.99% return y-t-d (high dividend payouts are more than offset by the decline in price). BDC share prices ~15% lower when the S&P 500 is up 14% y-t-d. BDCs with “bad PIK” (loans accruing, but not paying interest due to deterioration in cash flow), loan amendment to avoid impairment (kicking the can), increase in non-accruals, 2x leverage, 2nd Lien loans exposure, and poor liquidity have led to poor share price. Within the Top 10 publicly listed BDCs, two are trading at a discount to NAV of 32% and 58%, respectively. Hats off to the 20% club, those BDCs that are growing, originating new loans, and performing well (Ares leads the pact as the largest BDC manager, while Main Street has the highest price-to-book value) - these BDCs are well positioned to grow. BDC managers (REITs too) disdain when shares trade below NAV, since markets view their company in negative light; growth and higher fee income is important, if shares trade below NAV any share that is sold below NAV is dilutive for existing shareholders. Under the Investment Company Act of 1940, BDCs are generally prohibited from issuing shares below NAV without explicit annual shareholder approval. When loan performance is poor, incentive fees and moral obviously suffer. Takeaways: 1. Invest with top quartile managers should always be the goal, it is true for private and public markets. 2. The variance of realized outcomes is greatly magnified in the public markets for private credit managers (BDCs) vs closed end funds à closed-end funds have ~25 lower volatility vs. BDCs. 3. Alpha is derived from mitigating loan losses; the goal is zero default while the average manager experiences roughly ~100bps annual loss rate.

India - France Tax Treaty Amended. And this one is not cosmetic! The amendment quietly changes how cross-border structures, dividend flows, and business models between India and France will be taxed. 1. Capital gains on shares Full taxing rights now move to the country where the company is resident. This will directly influence exit structuring and holding company decisions in cross-border M&A. 2. MFN clause removed A major source of treaty litigation disappears. 3. Service PE concept introduced Foreign companies rendering services in India now face clearer PE exposure risk. Tracking employee presence and project duration will be critical. Why this matters These amendment are really about certainty + alignment. Less interpretational play, more structured tax positions. For international tax teams, investors, and founders operating between India and France - this will impact structuring, compliance strategy, and litigation outlook. Next watchpoint: Implementation timeline post ratification. #dtaa #taxtreaty #india #france #internationaltax #tax