It really is amazing how resilient the lower middle-market M&A tends to be. Despite a slowdown in larger transactions (valuations over $100 million), the niche that Generational Equity operates in has been fairly stable. In fact, so far this year, we are on pace to close just as many deals this year as we did in our record-setting year of 2015.
First, it is easier to locate financing for a transaction valued at $25 million versus one valued at more than $100 million. It is far less risky, from a lender’s standpoint (and a buyer’s as well), to acquire several $25 million targets than trying to hit a home run with one over $100 million. Thus making the time it takes to close a smaller transaction shorter AND, most importantly, making the integration into the new entity that much less complex as well.
Secondly, the factors driving the buyers in our niche are much more strategic and long-term than those that focus on very large transactions. Buyers we deal with are looking for new products, new geographies, new markets, access to new technology and skilled people. These features tend to make our buyers insulated from other issues that may affect billion-dollar transactions.
Finally, our success as a team is driven by our process, which creates fully vetted, highly committed sellers. Buyers know this and find our clients highly desirable because of this. One thing that all buyers lack is excess time. Nothing can be worse for them than to spend months and months with a seller only to have the deal fall apart at the 11th hour due to a seller getting cold feet. Or, worse yet, having a buyer discover some unforeseen weakness or issue that destroys the deal.
That is why the first step in our process is a full business valuation. We examine and drill into our client’s historic financials, operations, growth strategies, strengths, weaknesses, opportunities, and threats. This 90 - 120 day program can be quite grueling for many clients. But it really is helpful in that we can, at the end of the analysis, provide our professional opinion on what the value range would be in the current market for our client.
This vetting that we do, a mini-due diligence is how some clients describe the process, really weeds out those business owners that are not personally ready right now to sell AND those businesses that are not quite buyer ready yet, those that need to enter our hold-and-grow program to improve or enhance their value.
Despite what you may read, for some deal flow may be down, but Generational Equity is on course to have another record year. This is great news for our clients.
If you own a business and would like to find out how our services might be of benefit to you, please reach out to me at firstname.lastname@example.org or 972-232-1125. Our proven process has helped hundreds of entrepreneurs achieve their financial goals. We might be able to do the same for you!
By Carl Doerksen, Director of Corporate Development at Generational Equity.
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