As has been the case for a while now, the latest quarterly Middle Market Indicator from the National Center for the Middle Market was a positive read for Ryan Binkley and middle market business owners.
The Q2 report included several encouraging factors for the middle market, and precursors to future M&A activity in this exceptional seller’s market, including:
- 4% average revenue growth of middle market companies, above the historical average of 6.8%
- 7% employment growth (be sure to read Generational Equity’s recent blog post on tips to hiring top talent)
- 90% confidence in the local economy, with 86% towards the national economy
- 71% of middle market businesses intend to invest in the near future
- Short Term Index score of 100, an increase from 80 in 2017 Q2
However, the element Ryan Binkley felt deserved further exploration was the section of the report dedicated to major changes in middle market companies. As President and CEO of Generational Equity, Ryan is highly experienced in helping business owners in all industries handle pivotal transitions and maximize their value.
Change is the Word for Middle Market M&A
In just the last three years, 30% of all middle market businesses experienced some form of significant transition. This can come from many forms, such as:
- Changes in CEO after retirements and resignations
- A large enough acquisition to be considered transformative for the acquired company
- Sale of a sizeable amount of the company’s assets
Even more importantly, a similar number, 28%, expect a major transition to occur in their company over the next three years. Whether this is a change in leadership or as a result of M&A activity, over a quarter of all middle market business owners expect to be confronting a decisive shift in the coming 36 months.
Maybe you are aware this change is coming and have planned for the occasion? Or perhaps the transition will be sudden and unexpected? In either scenario, there are safeguards you can put in place to help make this change go as smoothly as possible, especially if it involves some form of M&A transaction.
Using his experience in middle market M&A as part of Generational Equity, Ryan Binkley dives into greater depth to discuss how to manage the two biggest concerns facing business owners making a transition – maintaining business continuity and taking your company to the next level.
Middle Market M&A Concern 1 – Business Continuity
49% of middle market business executives stated that one of their biggest concerns during a major transition is maintaining business continuity. This can undoubtedly be a difficult proposition in a time of significant upheaval. It almost feels like an oxymoron – how can you keep the value of continuity while making such a prominent change to your company?
However, Ryan Binkley believes it is certainly possible to transition to new ownership or management while still growing the business. During an M&A transaction, maintaining business continuity during the exit process is not only encouraged, but vitally important to achieving an optimal deal.
Because, simply put, your business will not sit still while you undertake the months of preparing documentation, sourcing interested buyers and handling negotiations. Your company still demands the same level of attention you would regularly give it to ensure it maintains the trajectory that attracted buyers in the first place.
This is already a full-time job, and considering you can expect the exit process to take 9-12 months to conclude, unless you can divide yourself in two, handling this without any assistance invariably means one of these routes will not be optimal, and possibly even both.
What’s the answer? Well, for Ryan Binkley, the simplest solution is hiring an M&A advisor like Generational Equity to maintain the movement of the exit process at all times, while you focus your expertise on the effective running of your company. This way, you keep continuity over your company’s growth and the satisfaction of your clients, suppliers and staff, while an expert is in control of your transaction.
Ryan and Generational Equity experienced this first-hand with Bobby and Stacy Evans as they were preparing to exit their company. After undertaking the due diligence process, which can be one of the most frustrating aspects to confront without the correct knowledge, Bobby recognized the importance of an M&A advisor in keeping both sides moving in the right direction.
“You’ve got to understand as a business owner that throughout the whole due diligence process, you’ve also got to keep your company operating, which of course is a full-time job in itself. To keep the process moving along and be done efficiently, you need to have someone like Generational Equity helping you out.”
This is just one benefit of bringing an experienced M&A advisor on board. Here are others:
- Buyers will feel more confident over the seller’s commitment to actually exiting their company, and will be reassured negotiations are less likely to irreparably break down
- Sellers will have a clearer understanding of the true value of their business
- Sellers are more prepared to overcome any eleventh-hour hurdles during negotiations
For Ryan Binkley, the risk of trying to balance the significant demands of running a middle market business with the added pressure of exiting makes the use of an M&A advisor not only viable, but far more beneficial.
Middle Market M&A Concern 2 – Reaching The Next Level
Secondly, after such an impactful change as an M&A transaction, you want to know it benefits both you and your company. After all, even if you intend to exit outright and reap the rewards of life after business, after years of hard work and investment, you’ll likely want to ensure the legacy you leave behind is secure.
The key to overcoming this concern (which 44% of middle market executives cited in the latest MMI) lies in how you source a buyer. In the end, the buyer is the individual or group that will be pivotal in the future of your business. Therefore, it’s important to find one that not only gives you the value you deserve, but will build on the platform you’ve established.
At Generational Equity, Ryan Binkley’s team employs an auction process to make this decision far more straightforward. An auction focuses on a targeting as many potential buyers as possible, then weeds out unfit buyers quickly and efficiently, making it more likely you find one that not only will make the optimal offer, but build on the growth you’ve already instilled.
To give you a quick insight, here are some questions you might want to ask yourself before deciding your optimal buyer:
- Does their management style meld well with our company’s pre-existing approach?
- Do they have a strong track record in their industry/of developing companies with similar stature to yours?
- Do you like their style and approach to business philosophies and during negotiations?
Overcoming Middle Market M&A Concerns
Hopefully this article has given you a better understanding of overcoming the biggest concerns middle market business owners encounter when making a significant change in their company, including M&A activity.
For Ryan Binkley, being able to effectively handle both the desire to maintain business continuity and push plans to reach the next level are vital to not only securing the future of your company and maintain sanity during these challenging months, but also ensuring you receive maximum value at the end of this time of change.
If you are interested in learning more about how and when to exit a company for the optimal offer, Generational Equity’s regularly updated insights will help you stay in control throughout this life-changing journey.