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Deal Making Circa 2023

By Generational Group

04/03/2023

Recently, one of our colleagues, Phil Pizzurro, Sr. Managing Director Mergers & Acquisitions (and Generational’s Manufacturing Practice Leader and Managing Director for the Chicago office of Generational Capital Markets) was interviewed by the publication Middle Market Growth. The general topic was about trends that will be impacting M&A in 2023. Phil hit the nail on the head as he usually does 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 echoed the sentiments of other commentators in the article:

Buy-and-build strategies have long been favored by private firms, and 2023 looks to be no different, albeit with a greater emphasis on add-on acquisitions relative to platform investments, thanks to rising interest rates, slowing economic growth and eager sellers.

“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 plus, we have seen an explosion in the use of bolt-on strategies used by PE firms around the world. 

Why?

Well to steal content from our colleague Phil, “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 in an article we published last year, “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.”  In fact through the first half of 2022, add-ons accounted for over 70% of all deals closed by PE firms.  

We anticipate that this % will only continue to grow in 2023 because as Phil clearly points out, these deals have incredible advantages over larger transactions. 

So, the good news is that if you own a lower middle-market business today, you are in great shape to reap the benefits of your market position. The real question you must answer is this: Is my business buyer ready? Does it have the attributes that buyers are looking for in this area and as a follow up question: Are you personally ready to pass on your legacy to a third party?

Both of these questions are where our award winning team with Generational Consulting Group (GCG) delve into daily. There are many ways to grow a business, but can you do so in a way that will attract professional buyers? Here is what a few of our GCG clients have said about how we helped them build a buyer ready business:

The great news, as Mr. Pizzurro stated, is that there has never been a better time to be a business located 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 are here to 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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