Understanding M&A: Strategic Tool for Middle Market Companies Hoping to Expand

When middle-market businesses seek to acquire other companies, they usually have one goal in mind: growth. Recent research suggests that about 70% of middle-market companies who acquired another business in the last three years did so planning to grow. About 60% of companies involved in the M&A process say that M&A is a key component of their business growth strategy.For sellers, the equation is more complicated. Cash matters, with 80% of sellers asserting they hope to monetize their business. Yet about three-quarters of seller say their most recent sale was geared toward streamlining their focus on the central business and selling off unnecessary units. Half say the retirement of the owner was a factor. Mergers & acquisitions decisions are complicated and rarely motivated by a single factor. Regardless of the motivation, M&A offers middle-market businesses a viable tool for realizing a number of objectives. Whether you’re planning a deal now or in the future, here are some key facts about M&A to bear in mind:

Acquisitions Can Be a Key Growth Driver

In the 4th quarter of 2017, inorganic growth was 6.4% of total growth among growing middle-market companies. Those who participate in the M&A process, however, see it as part of a long game. Deal-making businesses anticipate that purchases will drive at least a quarter of their growth. Deals can radically alter the size and shape of a mid-sized company.

M&A is a Way to Penetrate New Markets

About 80% of acquiring businesses are strategic in their purchasing decisions. They are either constantly pursuing new options (about half), or they begin a search for a new target after they’ve made a decision to acquire (33%). What motivates their decision? The most important factor is penetrating new markets. Adding new customers is also an important consideration, with 68% of buyers listing this among their top three considerations.

Acquisitions Bring in New Talent

Acquisitions don’t just bring in new customers. They also offer new people. More than 40% of acquirers list talent acquisition as a key consideration. Private equity firms and core middle-market businesses with revenues between $50-$100 million are especially invested in cultivating new talent.

M&A Can Be Opportunistic

While most purchases begin with a strategic goal, sometimes it’s just about finding the right business at the right time. About a fifth of buyers and nearly half of sellers say they capitalized on a surprise opportunity. So if you’re interested in a specific company, give them a call.Would-be sellers should likewise ensure that their companies are always deal-ready. That’s not just a good way to take advantage of an opportunity; it’s good business management.

About Kratos Capital

Trying to manage a transaction on your own is a fool’s errand. The expertise of an M&A advisory firm can help you better understand the other side’s motivation, and then challenge this knowledge into the best possible deal. As you navigate the process, partner with an M&A advisory team that boasts expertise in your industry. Kratos Capital can help.