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:
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.
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.
“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 LLC. Combined, 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:
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.
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.
© 2015 Generational Equity, LLC. All Rights Reserved.
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
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 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
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.
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.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
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
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
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.
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
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 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
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
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.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
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 would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Equity, LLC’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Equity to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Equity is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.