Buyer Trends in Lower Mid-Market
Other businesses are a significant market for companies being sold within the lower mid-market.
A chart in the most recent MarketPulse survey makes the point clearly.
The quarterly survey reflects market experience of advisors and brokers nationally. It is produced by M&A Source and the IBBA.
Existing companies and strategic buyers accounted for 33% of the sales completed in the lower mid-market during the fourth quarter of 2020.
Private equity firms accounted for 22% of sales during the same period, including platforms and add-on acquisitions. We are seeing private equity firms swimming upstream as a class in search of larger deals with EBITDA levels exceeding $2 million.
Surprisingly, the individual entrepreneur community represented a combined 40% of fourth quarter sales. Individuals and business owners are actively seeking opportunities. Entrepreneurship is alive and well.
Our personal experience confirms these trends.
The process we use to sell companies targets sectors most likely to be interested in a company being offered.
For businesses, growth through acquisition is a valid strategy. It is a method that enables companies to grow market share, expand capacity, or diversify into shoulder industries by buying other entities. We largely focus our sales efforts on this segment.
The trend is supported by the vast availability of debt that is available at historically low rates.
Put simply, a company can borrow to make a purchase without tying up large amounts of capital.
Qualified individuals with a strong entrepreneurial spirit and appropriate resume are also viable.
Our sales approach focuses on developing a market for a sale candidate. We look for enterprises that would be likely buyers, bring the opportunity to them for consideration and then seek indications of interest or letters of intent on a schedule that enables sellers to evaluate which would be the best fit.
A catch phrase for this is “controlled auction.” We find it gives owners the best chance to achieve the value available on the market today.
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Buyer Trends in Lower Mid-Market
Other businesses are a significant market for companies being sold within the lower mid-market.
Case Studies
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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.
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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.
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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?
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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.