Vivak Gupta has hands-on experience with M&A — including his share of battle scars — after 36 years in the IT industry. Most recently, he was the president and CEO behind Mastech Digital’s $55 million deal for InfoTrellis in 2017.
No two acquisitions are the same, but he says he tries not to make the same mistakes twice.
“It’s a pretty complex process, and there is no shortcut but to actually learn from experience,” Gupta says. “It’s baptism by fire — you have to burn your fingers and then you really get to know what works and what doesn’t work.”
But even when Gupta isn’t actively looking to buy or sell a business, he keeps an eye on the dealmaking market — who is buying and selling companies and raising capital — because it’s a good indicator of what’s happening in the industry.
“Why is my competitor acquiring a company in, just as an example, the cloud space?” he says. “How is it connecting with their current strategy? Then, you watch how they complete the acquisition and how the market rewards them or penalizes them for that acquisition.”
Gupta isn’t alone in his feelings about the value of M&A. Many executives, investors and advisers see how mergers, acquisitions and dealmaking play a critical role in business today — both directly and indirectly. And those who ignore it run the risk of falling behind as their competitors scoop up a new technology, diversify into new geographies, raise growth capital and implement long-term exit plans that help them operate better.
You owe it to yourself to build your M&A knowledge and network, but don’t take our word for it. Here’s what some of Pittsburgh’s dealmakers had to say.
Take the initiative
M&A is done by different companies for different reasons, Gupta says, adding that you can get ideas from watching others, including honing your own strategy, because it’s important to agonize, from the beginning, about why you’re doing deals.
Many times, organizations are approached by someone looking to sell, such as founders looking to exit.
“That’s not a bad thing, but that’s more reactive,” he says.
It’s better to start at the drawing board and figure out your purpose for buying a company, Gupta says. Is it to bulk up or add new capabilities? Are you trying to diversify? Are you trying to realign the organization?
Gupta stays in touch with what’s going on in his industry by subscribing to numerous M&A reports and scrutinizing them to try to determine what his competitors’ objectives are and if they’re working out — and sometimes gets good ideas from his research.
Watching the dealmaking market isn’t just a way to gather ideas. It’s also a way to be ready for changing market conditions.
Chris Farmakis, shareholder and chairman of the board at Babst Calland, sees a lot of private equity capital in the marketplace chasing down middle-market deals. These firms are good at spotting regional or family-owned businesses, investing in one and then doing roll-up acquisitions to consolidate the industry.
“Business owners need to pay attention to this activity because what could happen is, you might be in an industry that consolidates and you’re the last standalone business,” he says. “You wait too long — you have no one to sell to or, at best, your purchase price is lower.”
Even if you’ve been successfully operating your business for 30 years, consolidation can add pricing or competitive pressures because your competitors now have scale.
“Business owners focus more on customer relationships and operations, as opposed to changing market conditions outside of their industry,” Farmakis says. “Sometimes, it’s important for them to lift their heads up and take a broader look at the market.”
Farmakis recommends utilizing trade associations as a resource, but doing so requires a different kind of networking than what business owners would normally be doing — which is mining customers, looking at new operations and other things that relate to operations.
For example, business owners can get a sense of market-based pricing for their industry, and people share things like, “The multiples are landing here,” or “This is what I heard they sold their company for.”
“Trade associations and industry associations can be a very good heartbeat or pulse as to what’s going on in the industry, and it’s a way to get direct and indirect information about people who have sold,” Farmakis says. “You can get a sense of, if you’re buying, what companies might cost and how they’re funded.”
Know your value
President and CEO Michael Wagner started Target Freight Management more than a decade ago. He did his first two deals in 2019 when he bought out his business partner and acquired his first company. However, he paid attention to M&A prior to that, as it helped him understand the market and how his company’s value was changing.
“I wasn’t looking to exit, but there were big numbers thrown around in my business in the last three or four years,” he says. “I think it’s slowed down a little bit, but it’s just good to understand and know what’s going on in your business from that standpoint.”
Wagner also already had a foundation of knowledge when his partner wanted to sell. Wagner, who has never worked in another industry, wasn’t ready to retire at age 40, and he didn’t want to work for somebody else or wait until a noncompete ran out.
“It was important for me to understand the value of the business, and what it was going to cost me to buy him out,” he says.