Do traditional M&A boutiques need to worry about their business - or what does the digitalization of the M&A labor market mean for the industry? And how can Corporate M&A departments benefit from this development?
Freelancing is booming: In the US alone, an estimated 73.3 million professionals work as freelancers. And forecasts predict that this will grow to more than 90 million by 2028.
Now, not everyone freelances full-time - but the trend is clear: More and more employees are looking for a way into self-employment, outside of rigid structures.
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Freelancers in M&A - a sign of the times
The trend toward self-employment is also evident in the M&A market. For many market participants, this initially sounds paradoxical - after all, M&A is a classically relationship-driven business.
But as in other industries, such as software development, the trend on the customer side is clear. Whereas ten years ago people still relied on personal recommendations, today even complex consulting projects are increasingly being advertised online.
Markets are being digitized and globalized worldwide. This development does not stop at the consulting business. Business deals that were built on the proverbial golf course years ago now more often start on Google or Linkedin.
The digitalization of M&A boutiques
A business sale doesn't follow the same market dynamics as normal consumer spending. Trust is the currency, and that's not going to change.
Nevertheless, the market environment has changed in M&A as well. Hundreds of tool providers have diluted the sovereignty of the traditional players. Information and buyer data can now be obtained quickly through software databases.
Consultants must differentiate themselves more through process and industry know-how. The headwinds are getting stronger for classic M&A generalists.
The war on talent in M&A
And it is precisely this trend toward specialization that is also fueling the M&A freelance business.
Years ago, it was common for senior investment banking staff to set up their own boutique as an exit, but today this step is often skipped in favour of freelancing or setting up a company.
The reason for this is simply explained. Boutique business means fixed costs and personnel headaches. Even M&A boutiques are not immune to the war on talent. That's where freelancing is an attractive alternative.
So, on the one hand, we see the emergence of a freelance scene for M&A advisors, and on the other hand, an increasingly difficult market environment for boutiques. But what does this mean for the client, and for Corporate Development departments in particular?
Sell-side M&A freelancing
On the sell-side, M&A boutiques show their strength in their local network. If a seller is looking for a local partner to sell their business to, traditional boutique partners will have a strong regional network to tap into.
Working with freelancers, on the other hand, means access to a global pool of consultants. If the seller is interested in international buyers, they can find freelancers in any part of the world to guide them through the local market environment.
That being said, working with freelancers is particularly suitable for companies that want to be actively involved in the process. As an integral part of the company and even before the actual M&A process, an M&A freelancer can contribute to the success of the transaction in the preparatory measures, e.g. exit readiness and structuring the necessary documents for the data room.
The industry-specific knowledge in combination with an established network in the market, allows an early market and maturity test to get first feedback quickly and cost-efficiently.
Buy-side M&A freelancing
Corporate M&A departments have special needs when it comes to buy-side transactions: the dealflow is often volatile and resources are difficult to plan. M&A freelancers can help to ease this pain on an ad-hoc basic.
Here, we’ve seen three scenarios work out well for the teams:
1. Adding expertise in complex situations
For complex transactions like carve-outs or divestitures, adding a senior professional with private equity or M&A project management skills to support the in-house M&A department can be a great asset to structure the process as lean as possible and get much needed guidance.
2. Supporting the M&A Deal Lead
Supporting the M&A Deal Lead with while the person is busy with multiple ongoing projects is another aspect.
An M&A freelance consultant can support with project coordination, due diligence coordination, financial modelling/valuation, preparation of internal briefings and discussion papers for the Steering Committee, Executive Board and Board of Directors that usually require a lots of the heavy lifting.
3. Interim M&A Deal Lead-as-a-Service
Full-time Senior M&A professionals are expensive and need some time to get up to speed. Especially CEOs who want to leverage M&A as additional strategic growth tool, are appreciating the flexibility to build up a pipeline with the leadership team and scale M&A operations up as dealflow increases.
The labor market is becoming more flexible, and that doesn’t stop at the consulting industry. For M&A departments as well as sellers, this opens up new opportunities and a whole new world of talent.
For M&A professionals, it means access to new flexibility and opportunities - regardless of who they know or who they worked with, but purely based on their skillset. Exciting times ahead!
Ömer F. Güven, CFA is CEO & co-counder at Fintalent.io, a staffing platform for M&A and Private Equity professionals.