After more than a year of fervent dealmaking during historic volatility and uncertainty, InterGrowth 2022 gave us an opportunity to reflect on the past and refine our vision for the future.

InterGrowth is an annual networking conference hosted by the Association for Corporate Growth (ACG) for middle-market private equity professionals and transaction advisors.

They say, “what happens in Vegas, stays in Vegas.” But we couldn’t resist sharing our most meaningful takeaways from three days in Las Vegas.

1. Fatigue and burnout impacted everybody in dealmaking.

Whether you are an investor or a transaction advisor, you likely walked away from 2021 with a considerable sleep deficit. Concerns around rate hikes, inflation, global instability, and high volatility in public markets from the beginning of 2022 also forced many M&A professionals into yet another set of challenges.

We saw an unprecedented number of projects come across our desk in the latter half of 2021 alone – and we certainly felt the fatigue from running a marathon at the pace of a sprint.

If you have noticed some heightened stress after the last 18 months, you are in good company – we have all burnt the candle at both ends to keep up with deal activity.

2. Collaborate, not mandate.

The increase in fatigue and burnout has inevitably impacted one group in particular: management teams. The break-neck pace of exclusivity periods, extensive data requests, and intense negotiations have forced management teams to adapt to the ever-growing fervor of the private equity industry. To add, many executives had to navigate through these challenges all while having to lead their businesses through a period of historical volatility and macro challenges.

As a result, investors must carefully reconsider how they shape future partnerships with traditional mechanisms like earnout provisions and clawbacks. These mechanisms once provided additional reassurance to buyers by compelling management teams and other stakeholders to put their skin in the game. However, imposing strict performance requirements amid volatility and uncertainty could create undue stress on management teams. Or worse, it can be perceived as punitive or distrusting – which harms partnerships. Remember: trust and cooperation are harbingers to sustained value creation.

3. Human relationships must remain at the core of future M&A transactions.

Every business, whether it sells ballpoint pens or aerospace components, is grounded in human relationships. Product, intellectual property, and expertise are critical components in evaluating a company – but without the people to deliver the value and the people to buy that value, a company is nothing but ideas and inventory.

Considerations around human capital and relationship management will only grow more prominent, especially as business environments shift in response to economic, political, and public health conditions. As a result, investors must consider evaluating both internal and external business relationships as a critical portion of not only pre-close due diligence but ongoing growth and value creation.

Whether making a platform or an add-on investment, seek feedback from the employees – allow their stories and perspective to help shape the strategic vision for the investment. Talk to the customers – in our experience, their feedback can help paint a clearer picture of where a business is underperforming, and which customer touchpoints are the most critical to improving loyalty and driving future engagement.

The ways that people create and maintain relationships are quickly changing. Investors must be able to effectively navigate those changes to prevent their portfolio companies from becoming nothing beyond ideas and inventory.

4. Debate then align. Quickly eliminate those who resist alignment.

Pressure to perform is at a historically high level in private equity transactions. As a result, distractions and unnecessary obstacles could make or break deals. One of the most poignant insights from InterGrowth was that post-merger integrations should include a democratic process for freely sharing ideas and concerns, then enforce compulsory adherence to the aligned principles and values.

After a merger, all relevant stakeholders should fall into one unified force to pursue a common objective. Those who refuse to do so should be promptly released to prevent lingering dissent in a company’s values.

Focus on what brings growth, eliminate what doesn’t.

5. The future of M&A is still optimistic.

The first quarter of 2022 saw M&A activity value slump by 23% and the S&P 500 fall by 4.6%. Numerous macro trends still suggest that we should get comfortable with volatility and uncertainty for a foreseeable future.

However, we sensed high optimism that deal flow will regain its steam and that the recent challenges will uncover new opportunities. In fact, the slowed pace of transactions allowed many M&A professionals to take a step back and reevaluate some questionable recent trends such as rushed exclusivity periods and abridged due diligence.

Going into InterGrowth 2022, we expected to encounter concern and skepticism about the immediate future of dealmaking. We were surprised by how quickly investors have been able to adapt their visions and strategies in response to evolving circumstances and new challenges. While the last 18 months have been tumultuous, we predict that our lessons from the pain and uncertainty will better prepare us for the future of dealmaking.