Is the M&A Market Becoming an Acquisition Entrepreneur’s Playground?


A merger and acquisition (or M&A) occurs when a company or assets are purchased or consolidated. This happens through financial transactions, which could be a merger, an acquisition, a consolidation, a purchase, or some variation or combination of these, which ultimately concludes with a new leader or parent company.

While you may think that M&A would have cooled off during the pandemic, the opposite happened. In 2021, M&A activity surpassed the $2 trillion mark making it a record-breaking year and an increase of 158% compared to the year prior.

This is an exciting time for acquisition entrepreneurs because more deals are going on than ever. More than that, with the aging of the baby boomers, the greatest transfer of wealth from one generation to the next is occurring. Many retiring baby boomers are small, medium, and large business owners, which means many businesses will be coming to market.

But the majority of those looking at the M&A market are only focusing on the most significant deals involving large businesses. They are missing out on the majority of small and micro businesses at the bottom of the pyramid, which accounts for the majority of companies on the market and the majority of market shares.

It is especially the small and micro firms that are a playground for acquisition entrepreneurs. There are 5.7 million firms, and 40% of them will need to be transferred to new ownership before the end of this decade.

Types of Mergers and Acquisitions

There are
four main types of mergers and acquisitions that represent growth through acquisition strategies. These represent the many ways companies can come together or come under new leadership.

  • Horizontal M&A: This occurs when two companies in similar industries come together, and in doing so, they are able to expand their scope, whether by increasing their market share, audience, production site, or so on.
  • Vertical M&A: When two companies on different points along the supply chain come together, it is a vertical merger or acquisition. This type of deal helps a company become more self-sufficient with its production and/or distribution.
  • Conglomerate M&A: Companies in different industries that join forces can also benefit from doubling up their leadership and administrative capacity. This type of merger can have the advantage of expanding both companies’ market exposure, but it runs the risk of overreaching.
  • Concentric M&A: Sometimes, companies that are in the same industry but provide different services can join forces. In this situation, the two companies joined together to take up a large section of their industry. An example of this would be a grocery store chain buying a food manufacturer that they may sell in their stores.

Looking at 2021 Trends and Forecasting into 2022

2021 saw more than 62,000 deals announced globally, up 24% from 2020. The year saw an intense demand for technologically focused businesses at the top of the pyramid, particularly when it comes to digital and data assets.

While 2022 is not predicted to be as hot as 2021, it is still expected to be another major year for M&A. This is due to economic optimism, an abundance of capital, and an increased need for technological solutions in all sectors.

One trend expected to continue through 2022 is the increase of private equity deals, which amounted to nearly 40% of M&A in 2021.

With increased pressure from private equity, there is a greater need for buyers to bring operational experience and expertise. PE may respond with larger and more complex deals, alternative funding mechanisms, innovating companies, longer investment timelines, and data analytics.

Market confidence soared in 2021 due to a surging stock market and continued low-interest rates. While interest rates are set to increase in 2022, this should not discourage acquisition entrepreneurs.

What These Trends Mean for Acquisition Entrepreneurs

With increased market activity, particularly with the warning of rising interest rates, M&A activity may become somewhat frenzied. But this is all for deals at the very top of the pyramid, deals known as “mega deals.”

Acquisition entrepreneurs can benefit by looking at sub-market businesses with deals under $5 million. These are not the businesses attracting major attention, but there are many reasons why they are favorable.

Small businesses can have more obvious entry points that are pertinent to right now, where acquisition entrepreneurs can turn the ship around for major profits:

  • Improving Customer Experience: Many small businesses have been unable to keep up with labor shortages and the updates needed to stay apace with increasing demand for online sales and customer service.
  • Innovations to online customer relations are continually rolling out, and businesses that are able to get up to speed can see a significant jump in profitability.
  • Technological Updates: Again, small businesses have not always been able to keep up with the ongoing costs associated with tech upgrades. Tech-savvy acquisition entrepreneurs will be interested to know that 46% of small businesses are having issues with keeping up with new technologies and are seeking solutions.
  • Talent Recruiting and Retention: In the ongoing great resignation, 73% of small businesses see talent acquisition as their number one focus for 2022. This is where more management-minded acquisition entrepreneurs could insert their skills and career capital.

With any of these leveraging points, it is vital that acquisition entrepreneurs first start by taking inventory of what they might have to offer in a new business. One of the most daunting and thrilling aspects of being an acquisition entrepreneur is that you can become the leader of your own company overnight.

Watch Walker Deibel, Author of the best-selling book “Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game” as he dives into these 4 types of mergers and acquisitions, the 2021 trends, 2022 forecast and what they mean for Acquisition Entrepreneurs like you here:

If you are interested in becoming an acquisition entrepreneur, consider the Acquisition Lab your first stop. We work with you, providing by-side advice to round the corner on buying your first business.

Picture of Walker Deibel

Walker Deibel

Walker Deibel is an entrepreneur and advisor. He is the author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game and Creator of Acquisition Lab.

Free 3-Day Video Series

Outsmart the Startup Game

Bypass the common struggles entrepreneurs face when creating a successful business.

No spam. Ever.

Free 3-Day Video Series

Outsmart the Startup Game

Bypass the common struggles entrepreneurs face when creating a successful business.

In this free training you'll learn how to: