The Value of the Right Financial Partner for Mid-Market Acquisitions

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“Grow or die,” goes the old axiom. For mid-market businesses, surviving in today’s economic environment requires keeping up with the growth of your industry and overall GDP. Otherwise, basically, a competitor – or part of the economy – is eating up your market share. Still, growth can be difficult and, at times, growth can be slow.

In today’s hypercompetitive post-COVID marketplace, executives and shareholders are increasingly looking for alternative avenues for growth outside of their company’s four walls. Additionally, a relatively low interest rate environment, combined with record money supply, has led to greater availability of capital for mid-market companies to pursue growth through add-on acquisitions.

“Add-on” or “add-on” acquisitions have become a common element of creating shareholder value. When executed with the right strategy and with the right financial partner, acquisitions can be a very effective value creation mechanism. They complement economies of scale, expand customer bases and geographies, and complement core product offerings. Moreover, acquisition growth can also be used to solve innovation and R&D in a capital efficient way.

A partner who shares the company’s core values ​​and brings perspective and commitment for the right duration is as essential as the “nuts and bolts” to executing a successful acquisition strategy.

Our Pritzker Private Capital team regularly hears from closely held companies exploring follow-on acquisitions for the first time. Conversations focus on a critical, yet often overlooked, element for mid-market companies looking to make growth-oriented acquisitions: identifying a differentiated capital provider to pursue acquisitions alongside. A partner who shares the company’s core values ​​and brings perspective and commitment for the right duration is as essential as the “nuts and bolts” to executing a successful acquisition strategy.

Partnership for the right duration

When choosing a financial partner, founders and selling shareholders are often concerned about constraints and may be uncomfortable with the safeguards they inherit when transitioning to a majority share. In the traditional approach to private equity, one of the fundamental constraints is time. Companies are beholden to LPs who demand constant recycling of capital. A contrasting approach can be found with financial partners who understand and appreciate how middle market companies grow over the long term and are less restrictive than a traditional time-limited fund structure. We call this strategy investing for the “right duration”.

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The flexibility of “appropriate duration” capital helps prioritize transactions that are right for the business at any given time, thereby isolating the long-term success of the business from external pressures. For example, many middle-market companies approaching the fourth or fifth year of an investment cycle with a more traditional investment partner will slow the deployment of capital for transformative acquisitions given the narrow track the company has. for integration before a release. This approach is limiting and favors short-term disruption over long-term value creation. Free from this constraint and with access to an unlimited investment horizon, the business is free to grow as all stakeholders see fit, delivering what we believe to be a more valuable business.

This philosophy also provides for a more seamless integration process when two companies merge. The success of any business combination depends on the time and resources allocated to the integration, which is, as they say, “1 + 1 = 3”. This often includes in-depth diagnostics of how the combination of two sets of human capital, customers and suppliers, merge to form a stronger business. A deliberate and thoughtful onboarding process is essential to creating value through an acquisition strategy.

The success of any business combination depends on the time and resources allocated to the integration, which is, as they say, “1 + 1 = 3”. This often includes in-depth diagnostics of how the combination of two sets of human capital, customers and suppliers, merge to form a stronger business.

Trust, stability and alignment with core values

In our discussions with transitioning founders or selling shareholders, we spend as much time discussing stability and alignment of values ​​as we do discussing corporate values ​​and deal structures. The days of blind bidding and highest purchase price are over – sellers want buyers they can trust who will carry on their legacy and act as good stewards of businesses for years to come. .

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This trust also extends well beyond shareholders. In a transaction, employees, customers and suppliers of the acquired business all have a strong voice in the performance of the business moving forward. These voters are advocating for stability and, in some cases, they may have the formal consents necessary for an acquisition to proceed. We have seen large customers and suppliers go so far as to play matchmaker by introducing members of their supply chain to financial partners where transitioning shareholders have sought a transition. Longer-term capital partners advocate for thoughtful growth and can also insulate clients from the constraints of traditional private equity investment cycles.

For mid-market companies looking for growth-oriented acquisitions, a financial partner offering a flexible, agile and customizable capital structure with a commitment to investing for the right duration is as attractive an option as possible. With the right financial partner and a solid acquisition strategy, mid-market companies can protect long-term value and take full advantage of opportunities for growth and expansion.


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