Recently, one of our colleagues Phil Pizzurro, Sr. Managing Director Mergers & Acquisitions, and Manufacturing Practice Leader who leads our Chicago office, was interviewed by the publication, Middle Market Growth. The general topic was about trends that will be impacting M&A in 2023. Phil was right on the mark, as usual, with his thoughts:
“In uncertain environments, capital tends to flow down to the lower middle market, to businesses with $100 million in enterprise value or less,” says Phil Pizzurro, senior managing director of mergers and acquisitions at Generational Capital Markets. “They’re easier to finance. They’re easier to integrate. We’ve seen a lot of private equity groups do smaller bolt-on transactions,” Pizzurro notes.
Phil’s comments were also supported by others in the article:
“I think M&A activity will continue to be soft from a platform point of view,” says Russell Greenberg, founder and managing partner of private equity firm Altus Capital Partners, which invests in U.S. middle-market manufacturing businesses. His firm has seen an uptick in the number of add-on deals and is spending more time working on those engagements relative to larger platform investments.
Folks who have been reading our posts for years know the tremendous value that equity firms place on “add-on” acquisitions. For the past 10 years, we have seen an explosion in the use of bolt-on strategies used by Private Equity (PE) firms around the world.
One important reason ties directly to Phil Pizzurro’s comment, “add-ons are easier to finance and easier to integrate”.
It really is a simple formula and one that has grown dramatically over the years. In fact, an article we published last year stated, “according to recent data from Pitchbook, through the first half of 2022, add-ons, as a percentage of all private equity transactions, have reached an all-time record high.” Add-ons accounted for over 70% of all deals closed by PE firms during that time.
We anticipate that this percentage will only continue to grow in 2023 because, as Phil clearly points out, these deals have incredible advantages over larger transactions.
Therefore, the good news is that if you own a lower middle market business today, you are likely in a good spot in terms of market position and buyer activity. The real questions you must answer are: Is my business buyer ready? Does it have the attributes that buyers are looking for? Am I personally ready to pass on my legacy to the right buyer?
These are just some of the questions our award-winning team at Generational Consulting Group (GCG) work on daily with business owners. There are many ways to grow a business, but can you do so in a way that will attract the right buyers? Here are what a few of our clients have said about how we helped them build a buyer ready business:
This is a terrific time to be a business owner in the lower middle market. Now is your opportunity. The question is, will you pursue it or not? Inaction is the enemy of Intentionality. We stand ready to serve, and help you pursue your dreams and financial legacy. Contact us to learn how.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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