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., which also has offices in downtown Los Angeles.
“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.
Chris Manderson, a partner at Beverly Hills-based law firm Ervin Cohen & Jessup LLP specializing in mergers and acquisitions, venture capital, and debt and equity financing, said the mismatch of expectations in value between buyer and seller was a primary cause for faltered deals in 2023.
“Simply put, the sellers wanted too much money….
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