For today’s edition of the M&A Weekly Digest, which features news and tips in the M&A world, we offer articles about the importance of succession planning; the amount of dry powder private equity firms must invest shortly; how to find buyers when selling a business; why private equity firms invest in middle-market companies and how they assist in growth; and an examination of a recent acquisition that is a classic example of a synergistic add-on.
“[O]ne day you will decide to Milestone Partners, announced it was raising its fourth fund in order to invest in smaller companies. For their third fund they raised $240 million dollars in 2008 and, according to their portfolio page, invested in nine companies. But what caught my eye on their website was this comment:your company. When you get to that point, if your business is totally dependent on you for its ongoing success, you will have a very hard time finding buyers. This concept was demonstrated a few weeks ago when a lower middle-market equity firm,
‘We will invest only when proven management teams with demonstrated records of success are part of the opportunity.'”
With the large amount of dry powder in the market (not to mention low interest rates and low capital gains taxes), the stars are aligning for business owners who want to sell a company. Dry powder for those who are unfamiliar is excess capital that private equity firms are sitting on.
“[N]early $200 billion in private equity capital will need to be invested in the next 12-18 months. Equity firms typically have five-year windows in which to invest their committed capital. If it is un-invested at the end of that time frame, they have to return it. Since equity firms are loath to do this, the competition for deals will become fierce as these firms begin to compete, not only against each other but also with strategic players who, likewise, are sitting on an estimated $1 TRILLION in cash.”
This article goes over how to create a buyer list and which resources to use if you have a budget for creating a buyer list and how you should go about cultivating a buyer list if enlisting the help of a research service is not an option.
Here, Carl Doerksen analyzes why private equity firm Riverside Company recently raised a second fund of $150 million to specifically invest in middle-market businesses with EBITDA (also now EBITDAC) below $5 million before he shares results of an Ernst & Young study that backs up Riverside’s thinking.
Here are the key takeaways from the piece:
“Equity firms specialize in helping grow businesses, AND they makewhere there is an existing management team in place, meaning the companies are not 100% dependent on current ownership for success. If you can change your mindset that private equity firms are bad and you groom middle managers to replace you, you will have the opportunity to partner with one of these firms.”
“Private equity funds, as we have posted before, exist to do one thing: acquire companies.
Middle-market equity firms specialize in not only acquiring smaller companies but also in investing in their future growth. In some cases this can mean actually rolling up their sleeves and helping the portfolio companies grow by adding, financial, and managerial expertise. It can also mean locating and acquiring synergistic add-ons for existing portfolio companies.”
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