We continue to believe that mergers and acquisitions will carry on once the current crisis ends.
We know this is the case based on the volume of inquiries received from private equity funds, search funds and well-funded individual buyers even during the Covid crisis. While several of our clients have temporarily closed physical operations, others are busier than ever since they are designated as providing “essential services.”
A survey we participate in offers insights. The final quarter of 2019 reveals the types of buyers in the market. This information is from MarketPulse, a survey of M&A advisors nationally compiled by Pepperdine University.
In this chart, the largest segment of buyers is existing companies – representing 40% of the fourth quarter transactions.
This means that existing companies are growing through acquisition, a trend that continues to be a major driver of transactions in the lower mid-market. In order to remain competitive, companies seek growth, and acquisitions are the quickest way to achieve it.
On the left side of the chart, two more big slices of the buyer pool are private equity funds with platform acquisitions representing 13% and “add-on” acquisitions representing 12% of transactions. A platform is a company that serves as the primary company for additional acquisitions; “add-on” transactions are made to build up the platforms.
We do not have a crystal ball about what to expect post Covid crisis.
But at last check, PE firms had undeployed capital waiting to be invested. It is generally a “use it or lose it” situation. Fortune magazine estimated $1.5 Trillion in “dry powder” was available at the start of 2020.
As for existing companies, growth through acquisition remained a major driver heading into 2020. Time will tell if it continues, but we see reasons for believing it will.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
Questions That Owners Consider
We have had many conversations with business owners in the lower mid-market who are unsure about the future and wonder whether they should sell or hold.
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Are Buyers Still in the Market?
We believe that mergers and acquisitions will continue once the current crisis ends...based on the volume of inquiries from private equity funds, search funds and well-funded individual buyers.
Use the Threat to Better Prepare
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Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.