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Who is buying smaller companies like yours?

By Generational Equity

Who is buying smaller companies

A few days ago we looked at interesting data based on surveys compiled by CMF Associates, a financial and operational consulting organization that works with equity firms. CMF Associates has begun conducting a survey they will do on a quarterly basis of sell-side investment banks and M&A advisory firms that specialize in working with companies valued up to $75 million.

The data echoed what we have been saying for years: Professional buyers love smaller companies. Today I wanted to take another look at their 1st quarter survey and determine who these buyers are.

My question: What types of buyers are actively acquiring smaller companies in 2016?

The CMF Down Low Report for the 1st quarter answered that question nicely:

Strategic/Corporate Acquirer

39.4%

PE Platform

30.3%

PE Add On

16.7%

High Net Worth Individual

9.1%

Family Office

4.5%

Again, this data is based on CMF surveys of sell-side advisory firms that specialize in selling companies valued below $75 million (our practice tends to go a bit higher, focusing on deals valued up to $150 million).

What the CMF data tells us is that nearly 40% of deals closed by these folks in the 1st quarter were sold to corporate acquirers, usually larger public and/or privately held companies looking for synergistic fits. In addition, more than 47% were sold to private equity firms as either platforms or add-ons (for a full definition of platforms and add-on companies follow the links provided).

When we poll entrepreneurs attending Generational Equity M&A seminars about who they think would be the perfect buyer for their business, the vast majority usually have the following answers – none of which are optimal:

  • My employees
  • My VP of Marketing or Sales or Operations (or all three, assuming they can get along)
  • My Cousin Larry
  • My competitor across town (who has made several descending offers over cocktails at our last five association meetings)
  • Some wealthy guy at my country club who keeps asking me, “So when is your business going to be up for sale?”
  • I dunno. Who the heck would pay me for my business?

Now compare this list of replies that we get to the actual results shown in the CMF survey. What do you see? Except for the high net worth individuals at 9% and the wealthy guy at your country club, there are no similarities.

Why?

Because professional M&A advisory firms, like Generational Equity, part of the Generational Group, cast a far wider net and have worked with hundreds if not thousands of buyers over the years that are far more optimal than hoping your employees can pool enough capital to cash you out or that your Cousin Larry has the acumen to actually be CEO (since you will be carrying paper for him, this becomes a big issue).

We have over 34,000 registered buyers in our database across the entire spectrum of buyer types. Generational Equity dealmakers have closed deals with a wide variety of buyers.

Bottom line: The CMF survey simply proves what we have seen for years and years – we can find buyers for smaller, well run, profitable companies and close deals that are far more ideal than what most business owners can close on their own without our help.

And special thanks again to CMF Associates for providing keen insight into what dealmakers have known for years:

Lower middle-market companies are very popular with a wide variety of buyer types.

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

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Ralph Noblin, President of Noblin & Associates
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Terry D. Wickman, President, Keytroller
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Larry Moore, Owner, A Company Portable Restrooms
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Bil MacLeslie, CEO, ipHouse
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Terry D. Wickman, President, Keytroller
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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Andy Graham, Vice President, Modern Heating & Plumbing
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Karen S. Williams, CFO, BW Manufacturing