One of the things we pride ourselves on at Mirus has been our success with selling middle market companies to global strategic acquirers.
In the past few years, we’ve closed nine transactions with global Fortune 500 and other large public companies for lower-middle market clients whose size averaged under $30 million in revenues. The revenues for the acquirers? Typically over $1 billion, with many over $3 billion.
In each of these situations, multiple bidders were involved in the process, with a global strategic coming out on top. While not every deal goes that way, being prepared for that possibility is a best practice and tends to support better outcomes with smaller strategics, private equity and other buyers / investors.
We’re often asked about our experience dealing with large corporate acquirers and how the process may differ from deals with other types of buyers. Here are a few things to consider:
- Deal team and diligence preparation. The acquirer’s team is typically numbered in the dozens. Managing the logistics of diligence from so many people / functional areas is a challenge. While this may seem basic, if you ask around you’ll find that deals often go sideways because sellers simply aren’t prepared for this level of diligence work.
- Timing. You’re often working to the acquirer’s timing. Quarterly reporting, other acquisitions, board meetings – these all impact timing in what are often unavoidable ways. We worked with one large privately-equity owned company that was going through a $617 million IPO while acquiring our client’s business. Another insisted on closing in time for their next quarterly financial report – we made it, but the diligence process was intense and nearly around-the-clock. Sometimes you’ve got multiple bidders with complex timeline constraints where there are some tough decisions to be made.
- Deal management. For many owners who are actively involved in their businesses, there’s an instinct to be involved at a detailed level in dealmaking. This can lead to “deal fatigue” along with loss of focus on the business if the demands of the deal start drawing the owner away from managing the business. With global acquirers, the deal demands ramp up quickly and managing the deal efficiently becomes critical to success. Imagine spending hours going through monthly sales pipeline analyses and adjusted working capital level analyses with a group of financial diligence folks, then doing it again with other bidders, then getting your day job done. It’s best to manage the process so that certain tasks are simply taken care of and not unnecessarily escalated to the owners or the board.
- People. In most situations with large acquirers, multiple stakeholders are involved representing the acquirer’s interests. Lawyers, accountants, external diligence providers, HR, business unit management, corporate development, and senior executives (often the CFO, sometimes the CEO) are directly involved. Each has their role. Almost all have the ability to slow the deal or to kill the deal. How these relationships are managed can make the difference between closing and not closing.
- Selling Big for growth. Global acquirers are often drawn to middle market companies as a way to enter a new market. Demonstrating the ability to be a “platform” for a new corporate initiative goes a long way to raising your profile with prospective acquirers. Being part of a global organization can bring career opportunities for your people and market expansion opportunities beyond what your business could have pursued on its own.
These are just a few of the significant considerations that come up when pursuing transactions with global acquirers. While the effort can seem daunting, the preparation often pays off even if the deal is won by a middle market strategic or private equity firm. Our clients who have chosen to go the route of a global strategic deal often cite the growth prospects for their organization as being a key factor in making the decision. It’s almost certainly a possibility that’s worth preparing for.
Alan Fullerton is a partner with Mirus Capital Advisors. He works with owners of middle market businesses and can be reached at email@example.com.