From time to time it's important to highlight the acquisition strategies being used in the M&A market right now in order to educate our readers on how to effectively participate in this current seller’s market.
One such strategy you need to be aware of is the current evolution in the growth of add-on acquisitions by Private Equity Firms (PE) to platform holdings. This tactical growth plan is used by PE firms post acquisition of an initial “platform” company; over the course of several years, smaller, very targeted acquisitions are made that complement the platform, allowing it to expand much faster than it would organically.
This strategy allows the PE firm to gradually build a much larger entity and, using various economies of scale, reach new levels of revenue and profit that would be hard to achieve without the add-on program in place. This is fantastic news for owners of privately held companies that are looking for buyers/investors today.
One example was announced at the end of last year by The Sterling Group, a PE firm based in Houston, Texas, that specializes in “building winning businesses”. The firm invested in Camco Manufacturing's Liquids division (Liquids) via its platform company, Highline Aftermarket.
Highline was actually formed in April 2016 with Sterling's simultaneous combination of family-owned DYK and corporate carve-out AAHC, since renamed Highline, which, according to the Sterling website, “created a strong new automotive aftermarket distribution platform”.
The subsequent acquisitions of Service Champ, Levin's, and South/Win increased channel and geographic penetration and further solidified Highline as a market leader. The addition of the Liquids division fortifies Highline's position as the largest and most efficient nationwide network for producing and distributing selected liquids and chemicals for the automotive, RV, and marine markets.
According to Sterling, “Highline has more than doubled in size during its three-year partnership with Sterling and will continue to pursue both organic and acquisition-related growth strategies”. And as opposed to much of the press relating to PE acquisitions, “longstanding Liquids employees are joining the Highline team to provide continuity for customers and to continue building world-class operations to support Highline's growth.”
In most cases, especially in the middle market, acquisitions like this are often a true win-win situation for all parties, including original owners, employees, the platform company and the customers of the acquired firm, because PE firms like Sterling “partner with management teams to grow and build winning businesses in the industrial sector".
Nearly 80% of Sterling’s past partnerships have been with family businesses and corporate carve-outs. Sterling excels as a partner where it can bring its operational focus and expertise to a situation”.
This latter statement is really key in these relationships. Sterling, because of its experience in acquiring and growing businesses, becomes a vital partner in the growth of the platform and the subsequent add-ons. Not only does it bring significant capital to the investment, it also brings marketing, sales, and financial skills not readily available to most owners of privately held companies. This benefits not only existing management, but it also gives employees a career path that would have been unimaginable under existing management.
Here is what a few of our clients have told us about the benefits of partnering with a strategic PE firm:
These are just a few examples of how our deal teams work really hard to find the ideal buyer for each and every one of our clients. In fact, for many of our clients, the idea of being acquired by a PE firm is not even on their radar screen when they first engage us. Most have two common misconceptions about equity firms as buyers:
The first concept is easily debunked by the deal we are reviewing announced by the Sterling Group. I mean I wouldn’t necessarily call “producing and distributing selected liquids and chemicals” a “sexy” industry. In fact, I would venture to guess that there are PE firms actively investing in companies in your industry niche that you are not even aware of.
As for size, for add-on acquisitions, most middle market PE firms will look at very small companies to add to their platforms. In fact, according to Sterling, “Sterling is focused on making majority investments in manufacturing, distribution and industrial service businesses and is interested in exploring partnerships of all sizes.”
The critical issue that you face, and one of the important reasons to hire an experienced M&A advisory firm, is that you need to speak the language of the PE industry in order to get their attention. Keep in mind that these firms will literally look at dozens and dozens of opportunities to narrow the options down to a handful they really pursue.
Generational Equity’s success is largely due to our talented deal teams having the experience and technical know-how in approaching these types of buyers. If you would like to find out how our team could benefit you in your exit journey, please call us at 972-232-1121 or visit our website and provide us with your contact info.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2021 Generational Equity, LLC All Rights Reserved
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Capital Markets, Inc.’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Capital Markets to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Capital Markets is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Generational Capital Markets, Inc. ("GCM"), member FINRA/SIPC, is wholly owned by Generational Capital, LLC ("GC"). Both GCM and GC are affiliated with Generational Equity, LLC; and all part of the Generational Group of companies. This website is solely for general informational purposes and is not guaranteed by us to be accurate and complete statements of fact and should not be relied on as such. Opinions in this website constitute the current judgment of the author as of the date and its last update. The content of this website does not necessarily reflect the opinions of GCM, and is subject to change without notice, and GCM is not under any obligation to update or keep current any information contained herein. This website does not constitute any personal recommendations and does not take into account the specific investment objectives, financial situation or particular needs of the reader. The information contained in this website should not be construed as an offer, or a solicitation of an offer, to buy or sell any securities or other financial investments. The information presented should not and cannot be viewed as an indicator of future performance. To the extent permitted by law, GCM does not accept any liability arising from the use or retransmission of the information in this website.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.