A few years ago the Riverside Company became a leader in the micro-middle market with its creation of the Riverside Company Micro Cap Fund (RMCF). At the time, the fund was founded with the stated goal of focusing on investing in companies with EBITDA below $5 million (EBITDA = earnings before interest, taxes, depreciation and amortization).
The year was 2005 and, back then, equity firms acquiring billion-dollar deals with significant leverage were getting all the publicity. Of course, the financial crash of 2008 changed all of that and firms like Riverside, who had created a fund to focus on the much more stable, less risky micro-middle market ended up looking like geniuses.
Over the years, RMCF has been very active, acquiring 19 companies per their website. One of these portfolio companies is Polar Windows, a company that Generational Equity represented in December 2007.
RMCF has been so successful that it was recently announced that Riverside had completed fundraising for a RMCF II, a second micro cap fund with the same focus: middle-market companies with less than $5 million in EBITDA.
In fact, RMCF I was so successful in generating solid returns for its investors that Riverside was able to raise 37% MORE capital than its original goal of $100 million for RMCF II. In the challenging current fundraising environment, this is quite impressive.
In addition, RMCF II is also tapping into funds available under its designation as a Small Business Investment Company (SBIC). As an SBIC fund, RMCF II will have access to low-interest rate debt from the Small Business Administration (SBA). Through this SBA program, RMCF II can add up to $150 million in capital, providing RMCF II with a total of $287 million to invest in control positions in smaller, micro-cap companies.
“We love these fast-growing, innovative smaller companies. We want to take these gems into our jewelry shop and design and shine them to a previously unimaginable brilliance,” Riverside Co-CEO Béla Szigethy said. “But finding financing for them is a real challenge. So the SBIC, with its inexpensive and patient capital, is a made-in-heaven solution for us. The SBIC program has been around since 1958 and has proven results. It’s been a pleasure to work with the SBA through the licensure process. We look forward to using this war chest to buy and build a dozen or more of the best small companies in America.”
Not only was Riverside successful in partnering with the SBA in this new fund, they also drew a covey of returning investors from RMCF I. This is a testament to their ability to generate an ample return for their investors over the years. In fact, 62% of its commitments in this new fund are from existing investors from RMCF I. In addition, employees of Riverside regularly commit at least 5% of each fund, representing a significant portion of their net worth. In the case of RMCF II, that commitment was 10%.
You may ask, why are you highlighting this fund? We do so not only because of our ongoing relationship with them but to emphasize to middle-market business owners that you really do have options when it comes to finding buyers for your companies.
Riverside is a great story because RMCF I was created just prior to the great recession. However, despite this really big bump in the road of investing success, RMCF I soldiered on, acquiring 19 companies over the years and generating a substantial return for its investors. They survived and even thrived BECAUSE of their focus on the lower end of the middle market. They blazed the trail in the micro-cap investing world and now there are literally dozens of firms that have funds like this. Many of them are funds that were created after the financial crisis since financing for highly leveraged, mega deals dried up.
The challenge for you when you take your company to market will be getting in front of the right people at the right firm at the right time. This is not easy to do especially since you probably will only sell one company (your own) in your lifetime.
Positioning it properly so that your valuable intangible assets are clearly seen by buyers takes skill and experience. Not every investment firm or corporate buyer will see the same value in your intangible, “off balance sheet” assets. Many will focus solely on your historic earnings (again pointing out how critical it is to have your financials recast). However, what you want buyers to focus on is your future earning potential, much of which is driven by the uniqueness of your business model and operations. Having the help of an experienced M&A advisory firm is vital in order to get buyers focused on your unique features and their effect on your future earnings.
As I mentioned earlier, Generational Equity is quite familiar with Riverside since we represented a company they acquired several years ago. But this is just one relationship we have with an equity firm. Keep in mind that there are literally thousands of buyers like Riverside out there focusing on the lower end of the middle market. Our deal makers, given their years and years of experience, have connections and established relationships throughout the buying community.
If you would like to learn more about how you can effectively position your company to be of interest to buyers like Riverside, I would suggest that you should attend one of our workshops. Generational Equity is dedicated to educating business owners on how and when to sell their businesses for the most profit. People who attend our seminars tell us that the few hours they spend in the conference is the best investment of their time in years. We would be glad to see if you qualify to attend and learn more about this critical topic.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
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
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
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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.
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.
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 quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
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
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.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
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.
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