Although the article on Bloomberg focused on examples of large U.S. corporations putting their hoards of cash in play via acquisitions, the implications are very clear: If you own a privately held company and are interested in finding a buyer, the competition between corporate strategics and equity firms to make acquisitions has never been stronger.
Entitled “Corporations From GE to Apple Putting $2 Trillion to Work,” author Richard Clough does a good job of tracking the phenomenon of the past several years, post-recession, and the trend by corporations to hoard cash, waiting for economic trends to improve. As we have discussed, there are really only a few options available to CEOs and CFOs who are sitting on this $2 trillion pile of cash. One of the uses historically has been to acquire other companies under the assumption that buying is cheaper than building in most cases.
“Signs that the U.S. is rebounding from a winter slowdown and Europe is recovering from its recession are also beginning to encourage companies to pursue acquisitions.”
Although dividend payouts and stock buybacks are nice for investors in the short run; for many, the true value of their investment rises as the business expands and grows either organically – which has been quite slow post-recession with the economy expanding at 1-2% most quarters – or through acquisitions. More and more investors are aggressively encouraging their boards to look for strategic growth initiatives via the second option.
And they need to do something soon because, according to Bloomberg, the cash hoard only continues to grow despite buybacks and dividends:
“The cash pile reached $2.02 trillion in the latest quarterly filings of 2,300 non-financial companies in the Russell 3000 Index, according to the data compiled by Bloomberg as of April 21. The total rose about 13 percent from a year earlier in each of the two latest quarters, the fastest six-month gain since mid-2011. For comparison, Russia’s annual gross domestic product was about $2.01 trillion last year.”
Wow, is that a dose of reality. The cash pile on hand with 2,300 non-financial companies is LARGER than the entire Russian economy in 2013! Let that soak in for a moment. No wonder shareholders are getting antsy and want actions taken to use these funds wisely for growth.
Now analysts also point out that a good portion of these funds are being held by a relatively small number of very large corporations. And they are right technically, but even if you subtract out the $150 billion that is Apple’s share, you still come up with a huge stockpile of cash available.
And as we learned last week, more large corporate strategics are moving into the lower middle-market to make synergistic acquisitions of much smaller companies. In the case we looked at a few days ago, Lockheed Martin bought a company that was so small, in their SEC filings, it was listed as being “not material” to the overall operations of the company. As I mentioned, it may not have been material to Lockheed Martin, but I am sure it was to the owners of the acquired company.
The key takeaway here is this: Hoards of cash and lots of buyer competition equal what many are calling a seller’s market. This is great news for owners of privately held companies, especially those of you who have been putting off the sale of your company post-Great Recession. Now may be the time to act.
Are you unsure of your plans but are really interested in learning more? I have great news for you; Generational Equity is one of the leading sources of M&A information for the lower middle-market. Our seminars are packed with business owners just like you that want to learn about opportunities to find an optimal buyer in this investment environment. If you own a company generating less than $100 million in revenue, then you may be a great candidate to attend.
No matter what, do yourself a favor and learn as much as you can about the next seller’s market and how you can benefit from it. Remember that knowledge is power and the fact is you will eventually exit your business – ‘tis far better to do so via good planning than letting circumstances force your hand.
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.Salvo Stoch, Founder and CEO of Sleeping Partners
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.Rick Greene of Dobbs Equity Partners LLC
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.Shane and Johanna Kline, Owners of Vision Upfitters
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!JoAnn Ellis, Owner of Fondren 5 Star Kennels
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.Betty L. Brennan, President, Taylor Studios
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.Caroline Connelly, CEO, OptoTest
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.JoAnn Ellis, Owner of Fondren 5 Star Kennels
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