Recent data indicates a decline in middle-market transaction activity and deal multiples for private companies in the second quarter of 2023, influenced by rising interest rates and economic uncertainty. However, the data also shows that there are still transaction opportunities for quality businesses coming to market.
Private equity and institutional investors have been increasingly targeting family-owned businesses for potential acquisition. Recent industry data shows that smaller deals account for over 61% of all private equity transactions in the first quarter of 2023, and founder-owned business purchases, especially those valued under $100 million, are rising. In this week’s post, we look at some of the pros and cons of private equity investment in your family business.
The Weber Grill Case Study
A recent Wall Street Journal article highlighted the trend of newly-public companies reverting back to private ownership after a very short time in public hands. Among the boomerang IPOs mentioned in the article was that of backyard grill maker Weber. With the advent of grilling season, we were curious about Weber’s experience in the public markets and any lessons that family business directors might be able to draw from the tale. Among the lessons available for family business directors from the tale, we will focus on two for this post.
For this week’s post, we take a look at recent trends in middle market M&A. Despite turbulent economic and geopolitical conditions in the first half of the year, valuations in the middle market continued to hold their ground. Still, whether looking to buy or sell, family business owners would be wise to act sooner rather than later, as declines in volume and value thus far in 2022 suggest tightening conditions in the middle market.
This week we welcome Nick Heinz, ASA to the Family Business Director Blog. Nick is a Senior Vice President at Mercer Capital and a member of the firm’s Transaction Advisory team. This article originally appeared as part of an ongoing series, Buy-Side Considerations, from Mercer Capital’s Transaction Advisory team and highlights key considerations for family businesses looking to engage in a merger.
Dealmakers logged record levels of merger and acquisition activity in the middle market (deal values between $10 million and $500 million) in 2021. In this post, we highlight a few of the trends that bore themselves out in middle market M&A activity in 2021 that family business owners and directors should keep in mind when evaluating potential transactions in 2022.
In this post, we offer a unique perspective from Atticus Frank, CFA who worked in his family’s business for nearly three years prior to returning to Mercer Capital and joining the team’s Family Business Advisory Group. This post focuses on the wisdom, or lack thereof, of transactions. M&A decisions shouldn’t be undertaken without understanding the meaning of the family business to the family (Is the family business a growth engine, a store of value, a wealth accumulation vehicle, or a lifestyle vehicle). Atticus tackles the topic with a story about his family business.
For family business directors, 2021 should be an opportune time to consider making an acquisition. General indications on valuation suggest that the private company M&A market has not been priced-up at anywhere near what has been seen in the public markets. While this difference may be caused by a public market over-valuation issue that is “corrected” in the short-term, it suggests that there could be positive momentum in private company valuations as the economy continues to move through subsequent stages of the post-pandemic recovery. A good M&A deal can be made even better with favorable financing, which should be available to many borrowers in the current environment. We can’t predict the future, but those who take a buyer’s view of the M&A market now might be rewarded with enhanced returns. With pent up demand and a high availability of capital, we anticipate a rise in M&A activity over the next year with the best valuations and financing deals likely favoring the early bidders.
In last week’s post, we explored how to respond to unsolicited acquisition offers. This week’s to-do list is about being prepared for such offers if and when they come.
Successful businesses don’t have to go looking for potential acquirers—potential acquirers are likely to come looking for them. Most of our family business clients have no intention of selling in the near-term, and yet they often receive a steady stream of unsolicited offers from eager suitors. Many of these offers can be quickly dismissed as uninformed or bottom-fishing, but serious inquiries from legitimate buyers of capacity occasionally appear that require a response.
Stewarding a multi-generation family business is a privilege that comes with certain responsibilities, and each family business faces a unique set of challenges at any given time. For some, shareholder engagement is not currently an issue, but establishing a workable management accountability program is. For others, dividend policy is easy, while next gen development weighs heavily. Through our family business advisory services practice, we work with successful families facing issues like these every day.
Corporate Finance & Planning Insights for Multi-Generational Family Businesses
This is the inaugural post for our Family Business Director blog. By way of introduction, we thought we would anticipate a few questions that you might have.