The Upside to Giving Private Equity Firms a Shot (at maybe buying your business)
At Accelerated Manufacturing Brokers, Inc., most of our sellers are terrified at the thought of talking to, much less selling to, a private equity group. And, more often than not it has to do with one or both of the following reasons:
- A perceived lack of concern for the legacy created by the seller
- An inability to trust them (the private equity)
I get it. But, it may interest you to know that we have experienced a recent uptick in inquiries on our listings from private equity groups. And, based on M&A industry data, as well as what we hear on the street, we expect that trend to continue. Driving this shift in activity is a crowded and fiercely competitive marketplace for middle- and upper-middle-market investment opportunities. As a result, these PE firms are looking for other investment options.
Private equity firms, in general, have a reputation for making an acquisition, then cutting costs, making numerous changes and, in some cases, moving the company with little regard to the employees or the legacy the founders have created. The reality, according to Matt Pearson, Vice-President at Validor Capital, is “when transitioning a manufacturing business in the lower middle market, the likelihood of these things happening is almost non-existent.”
PRIVATE EQUITY 101
PE firms making an “add-on” acquisition, already own a “platform” company in the same or related manufacturing space. To acquire an add-on, there may be great talent and tooling within an organization that is appealing to the PE. Alternatively, there may be a synergistic opportunity to either broaden the scope of services they provide to their current customers, or to gain access to a new market for their current company via the add-on company.
Private equity firms are highly motivated to spend wisely to make the acquisition and following the acquisition. Their MO is to present a cash offer, which is music to any seller’s ear. They prefer to invest in solid management teams, but are not averse to investing in marketing or sales talent if necessary. And, they have a willingness to deploy capital for expenditures that have a significant ROI.
Additionally, the fact that they own a platform company means they can leverage the existing network of personal contacts, relationships, and distribution channels of the platform organization to benefit the add-on. Finally, they may introduce technology and systems to improve plant and office production and efficiency which may ultimately cut down costs and increase profitability.
All of this suggests that with the right private equity, your legacy could equally be safeguarded by the hands of a private equity or an individual buyer.
If you’re like most of our sellers, much of the business you conducted early on was formalized over a glass of bourbon or with a handshake. Fast forward to 2018.
Many PE firms have a team of analysts who review tens if not hundreds of deals a week. Technology has enabled them, and education shown them, how to structure financial models to determine if, based on numbers, any one company may be worth learning more about. And when they start asking questions, as they are initially mainly EBITDA focused, it can feel like they are talking a different language.
As a private equity moves along the decision-making continuum, from site visits, to a Letter of Intent, formal due diligence and an eventual Purchase and Sale Agreement, it’s important to work with a trusted advisor who can help navigate this process.
PE’s buy businesses every day and we sell them. At Accelerated Manufacturing Brokers, Inc., we are adept at navigating conversations, as well as reading between the lines of emails and contracts. It’s our job to find the right buyer who understands your legacy and respects your commitment to your employees and community. Whether the right buyer is an individual or financially backed strategic company (a.k.a. – private equity), we can be trusted to help you make the right decision. And if we believe that you, as an owner, and your company will be best served by aligning with an interested PE firm, we’ll let you know.