17 Feb Private Equity, Leveraged Buyouts and Long-Term Investing
Mainstream, larger deals generally get much more press coverage and clout. For one, they are almost always larger, ranging in the $50 million plus range. While this may be the most compelling reason for the more rampant press coverage, there are other more disconcerting reasons for following such PEG deals. Such deals often involve much more leverage and have a fairly short time horizon. One of the non-traditional exceptions in this “larger” venue is Buffett’s Berkshire Hathaway who buys with the intent to hold forever. This is one of the reasons we are much more drawn to the middle-market M&A arena: it’s a place where longevity and sustainability is not necessarily sacrificed for short term gains, however large.
It is certainly easy to say “we are not all about short term” just as easy it is for a fraudulent company like Enron to profess, “our mission is about integrity.” However, this is generally true of middle-market investors and private equity groups. Many of them work with conservative pension funds which are looking for something that holds long-term sustainability. Buying and holding seems logical, especially when value is what has been purchased. Companies that produce steady month-on-month and year-on-year returns for investors should not only not be leveraged but they should be praised and sought after. Middle-market M&A firms are constantly looking for such deals, ready to pounce when the right one comes along.
Because just about every firm, company and corporation would like to have a fund to help expand and increase value in the company for its owners and investors, it almost goes without saying that long-term investors and partners look more inviting to owners of such businesses. And since, you are reading a blog about M&A, it only makes sense that we would suggest finding the services of a professional advisor when entering into talks with a private equity group. Of course we would say that. However, let me enumerate some of the benefits of doing so:
- M&A advisors work to determine current market valuation for the company.
- Consultants work to find a wide range of potential buyers and investors for expansion. The better the network of your consultancy firm, generally the better
- Investors are generally familiar with such firms. There is a pre-established level of which allows businesses owners to bypass a stage in the process which requires relationships to be built. In our experience, this is one of the most beneficial aspects of working with an middle market M&A firm.
Of course matching sellers or wish to sell and buyers who want to buy is all dependent on what each side is looking for. However, if your company offers an opportunity for returns above the cost of capital or the next best alternative for a client, PEG or investor in our network, please let us know we can generally find a good match up. There are a number of companies which are poorly run and can be expanded with the help of some oversight from experienced managers within a private equity group. I personally hate leverage. So anything that avoiding levering-up to extract value is better than debting out a middle-market company and then leaving nothing left for the management left in place. In my mind it’s an unethical business practice at best.