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M&A Trend Impacts Smaller Companies Too

Lower mid-market company sales are often influenced by larger M&A deal flow. A recent article on the Forbes website illustrates this point. Here’s why.

Acquisitions of “platform” entities often result in a search by the new ownership for “add-on” acquisitions. The targets are comparably sized or smaller companies in related fields. “Platforms” are businesses viewed by investors as a starting point for further acquisition, “add-ons”.

The goal is to grow both the acquired company’s top line and bottom line. Smaller companies become very attractive targets to support this strategy. The processes we employ in transactions helps connect larger entities with smaller ones.

Our niche is private companies that are still run by the founders who started the company, built it to an operational level that has sustained employment and lifestyle for years, and now is mature but with an uncertain future. Owners are wondering what to do next.

We find that these companies are often too big for an individual to acquire, but too small to be considered a “platform.”

The article referenced above is on the Forbes Magazine website. The Forbes Finance Council predicts that M&A activity will continue strong in the months ahead.

The piece is authored by investment banker Marc Cooper of P J Solomon who makes two key observations.

  • More than $600B has been invested into buyout funds in the past three years. The data is from PitchBook.
  • PE funds have a record amount of “dry powder” - estimated at $2 trillion – waiting to be utilized for acquisitions. It needs to be used.

While much of this investment will involve large deals, the kind that hit the media on a regular basis, it inevitably inspires activity downstream in the lower mid-market – the niche we focus on.

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