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How Private Equity Firms Approach the Middle Market

By Generational Equity

Private Equity Firms

Regular readers of our M&A insights know that from time to time we focus on recently published transactions to gain insight into how professional buyers operate, giving you valuable information that could help you when selling a business.

Today we are going to look at a classic example of a private equity (PE) firm operating in the middle market.

The headline read: Sentinel Buys GSM Outdoors from Huron

Sentinel is technically Sentinel Capital Partners and Huron is Huron Capital. Huron is a perfect example of a private equity firm operating in the middle market, as it focuses on companies with revenue below $200 million.

Its investment in GSM and subsequent “add-on” acquisitions to it are a classic case study in the tremendous service these types of PE firms bring to owners of privately held companies. This is how the growth was described in the press release:

Huron Capital acquired Grand Prairie, TX-based Good Sportsman Marketing (GSM) in June 2016. In October 2016, GSM completed its first add-on acquisition with the buy of Isanti, MN-based HME Products, a designer and seller of hunting tools including accessory hooks, deer gambrels and drags, tree-stand accessories, and gloves.

In May 2017, GSM added-on two additional companies with the buys of Eugene, OR-based Bullseye Camera Systems, a designer, assembler and distributor of target shooting camera systems; and Scent Web from Beaverton, MI-based A-Way Hunting Products. Scent Web has a patented foam spray delivery mechanism for dispensing deer scent attractants.

Why do Private Equity Firms Use Add-on Strategies?

Two things stand out to me in that paragraph. First, you can see the strategy that Huron was operating under when it made its initial investment in GSM.

Clearly, the goal was to make the initial foray into the sporting goods industry and then add on to it by making precise and targeted synergistic acquisitions in order to grow the GSM platform into a much larger organization. This is a classic private equity firm modus operandi.

Secondly, although the size of the add-ons is not indicated, it is safe to assume that most (if not all) of these add-ons were smaller than the initial platform valuation of GSM. This is important to note as you begin to look for buyers when you decide to sell your company.

It is vital that you know who is acquiring and why in your industry. This is the type of research that Generational Equity's deal teams do for each client they work with. Determining the WHO and the WHY are equally important when creating your buyer list.

Would You Consider a Private Equity Firm as a Potential Business Buyer?

What we find most interesting when we create pitchbooks for prospects that show private equity firms with holdings in their industry is that quite often many of the holdings that have PE backing are unknown to our potential clients.

This is a very tangible benefit of working with an experienced M&A advisory firm like Generational Equity. Our deal teams not only have the experience of working with buyers like private equity firms, but they also have access to the research tools to aid them in their development of buyer lists.

Unfortunately, odds are good you have neither the time nor the skill set to conduct the same thoroughness of buyer research as a professional M&A advisory firm, which is another incentive for smart sellers to contact experienced advisors.

Not surprisingly, the add-on strategy begun by Huron will continue under Sentinel:

"We are very pleased to partner with Sentinel as we execute the next phase of our growth," said GSM CEO Eddie Castro.

"We have an incredibly committed and competitive culture and are passionate about our brands and the customers we serve. Our enthusiast end-user base is loyal and growing."

"We plan to leverage Sentinel’s extensive experience investing in specialty consumer businesses and making add-on acquisitions to continue our strong growth trajectory."

Sounds like a true win-win scenario for all parties, and the use of add-ons to drive growth will continue under Sentinel. We find these types of buyers to typically benefit our clients who have ideas for growing their business, but lack capital and expertise to take their $10 million company to $25 million, $50 million and beyond.

Contact Generational Equity for Advice at Every Step of Selling a Business

If you would like to learn more about how to conduct buyer research and find active private equity firms like Huron and Sentinel in your industry, you need to set aside some time and attend a Generational Equity exit planning conference.

These highly educational meetings are completely complimentary and are designed to help business owners develop the knowledge base they need in order to navigate the highly complex M&A industry.

If you are interested in learning from our experienced M&A advisors or want to attend one of our meetings, please call us at 972-232-1121 or visit our website, provide us with your contact information, and we will be in touch.

No matter what, please be sure to do your research when you begin to market your company so that you can find the optimal buyer for your business – not only one that will pay you a premium, but will also ensure the ongoing legacy you have built.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.

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