Insights & Info

Insights > Strategic Buyers’ M&A Initiatives in 2015 and Beyond

Strategic Buyers’ M&A Initiatives in 2015 and Beyond

By Generational Equity

strategic m&a

As much as we talk about private equity playing a key role in middle-market merger and acquisition (M&A) activity, it is important to remember that strategic players are also a key buying group driving activity in this sector. Both groups bring differing strategies and goals to their acquisition programs but they ultimately want the same thing: To find companies in the middle market that are profitable, growing, and “buyer ready.”

Recently Firmex and Mergermarket combined to survey corporate leaders (from now on referred to as strategic buyers) regarding their expectations for M&A activity in U.S. and Canada going forward. Their report, entitled “Mid-Market: The Crux of North American M&A,” is a great examination of how leaders of these strategic players in North America are viewing the M&A environment they face.

Firmex is a virtual data room (VDR) supplier. VDRs are now used in most M&A transactions to allow all parties – sellers, buyers, intermediaries, attorneys, etc. – to share and review critical deal-related documents in a secure environment. Mergermarket is an independent M&A intelligence research organization used by the world's leading financial institutions to originate deals. It provides proprietary intelligence on potential deal flow, buyer mandates, and valuations.

This is how they summarize their findings in the report:

“North American mid-market activity is on an upswing. For both the US and Canada, expectations are for an increase in overall mid-market M&A activity over the next 12 months as eighty-eight percent of respondents believe that the number of deals will increase for each of the two countries. Only 12% of respondents believe that dealmaking will remain the same.”

You can see these results visually in the following chart:

Source: Mid-Market: The Crux of North American M&A

Survey results like this from leading buyers of middle market companies are indicative of the current sellers market we are in. Keep in mind that the definition of the middle market can vary dramatically depending on the source. In general most middle market deals are defined as those valued below $500 million, and the lower middle-market is usually comprised of deals valued below $100 million. In reality these ranges encompass the lion’s share of all transactions in a given year.

What Makes the Middle Market So Attractive?

As we have discussed in the past, one of the factors making strategic players active acquirers in the current sellers market is the estimated $2 trillion sitting on corporate balance sheets waiting to be used, largely for acquisition initiatives. Although this is indeed a driving force behind current M&A activity, according to Firmex/Mergermarket, the middle market has special appeal:

“The popularity and attractiveness of mid-market firms as targets is one of the reasons behind this optimistic view of future activity, as the potential for advancement in many of these firms is spurred by technological innovation. As one partner at a private equity firm says, ‘Midsized and small businesseshave the niche and innovative business ideas that will lead to significant growth.’ He adds that the US’s and Canada’s economic recovery gives companies an added boost because it gives them ‘the much needed confidence to undertake M&A.’”

All too often owners of lower middle-market companies lose focus on what really motivates strategic buyers and what makes these entrepreneurial-run companies so attractive to larger strategic players. The Firmex/Mergermarket survey clearly outlines the fact that small businesses have usually carved out a profitable niche and are able to innovate much more quickly than much larger industry players. This makes them very attractive.

And the proof is in the data:

“Corporate acquirers anxious for growth are looking to small companies as a way to offset the hum-drum pace of the economy, which could mean more competition for private equity firms at the lower end of the market.

More than 70% of the acquisitions made by the 25 most active corporate acquirers in the first half [of 2014] – an industry-diverse list that includes insurer Arthur J. Gallagher & Co., technology giant Google Inc. and real estate brokerage Realogy Holdings Corp. – were deals valued at less than $50 million, according to data from research firm Sutton Place Strategies LLCCombined, those 25 companies did 99 such deals.”

This data is probably shocking to most readers. These huge industry leaders, through the first half of 2014 alone, made 99 acquisitions valued BELOW $50 million, which accounted for 70% of their acquisition activity!

This trend is expected to continue in 2015, as reflected in the Firmex/Mergermarket report:

Source: Mid-Market: The Crux of North American M&A

As you can see, the largest majority of deals closed in the next 12 months, according to these strategic leaders, will be valued below $250 million. If they had broken this survey down into smaller valuations, I would bet that a solid core would have been valued below $100 million.

What We Offer Business Owners

Attendees at Generational Equity M&A seminars are usually quite surprised when we present findings that are similar to the Firmex/Mergermarket research. Again, far too often lower middle-market business owners get so focused on the day-to-day operations of their businesses that they completely forget how attractive they could be to specific buyer types.

Generational Equity is a sell-side M&A advisory firm that specializes in the lower middle-market. As you can see from the latest Thomson M&A advisory ranking tables, our sweet spot is working with companies valued below $100 million:

Our services have been used to help owners of lower middle-market companies just like you achieve their financial goals either with an outright sale of 100% of the company, a partial sale to an investor group, or something in between. We can help structure a deal that meets your financial needs. We never work for buyers; we only work for sellers, and we are dedicated to helping our clients close transactions with optimal buyers with deal structures that protect their families’ financial legacies while maintaining the integrity of the business in the long term.

Special thanks to both Firmex and Mergermarket for capturing the M&A expectations of strategic buyers in North America!

Carl Doerksen is the Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.


Make an informed decision

The best decisions in life are informed decisions. We release educational business insights like this every week. Subscribe to make sure you don’t miss the latest news, views and analysis.


Success, you have been added to our list.

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
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
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.
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.
Betty L. Brennan, President, Taylor Studios
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
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.
Tom Currier, Former President & CEO, Rackmount Solutions
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 must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
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 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
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
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
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 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.
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 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
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
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 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
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 educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
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
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
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.
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