Prediction: EtA and Search (self-funded and traditional) will consistently be rival buyers to LMM PE funds and strategic buyers within 5 years.
EtA is not just acquiring sub-scale "below the PE radar" businesses anymore.
That's simply an outdated narrative.
Example 1: 👇
It's high time someone build the home services empire of the Hamptons.
A proper "
@WilsonCompanies
" or "
@girdley
-style holdco" that pursues this high-end high-margin market.
all I see is SMB M&A opportunity out here. Here's what I've scouted so far 🧵 !
1/Landscaping galore...
SMB twitter is starting to sound a little bit “get rich quick”. Lots of people talking about buying businesses for zero money down, how easy it is vs a startup, etc etc.
Be careful out there, it’s a lot harder than tweeting !
Family offices are often over-rated buyers. Permanent capital, yada yada yada. But there ARE great FO partners.
Same for PE’s rap of over-leverage, short-termism. But there ARE great PE partners out there.
SMB Sellers - do ur homework; don’t rely on sloppy generalizations!
Profiling three closed deals on Axial by searchers.
No, these were not proprietary deals or broken deals.
Yes, these searchers outmaneuvered PE buyers to win these without overpaying.
Deal 1 - med device biz in southeast. $1.8M EBITDA. Bought in Q1 2022 for 5x TTM EBITDA.
One of the best times to sell your business is probably when you’re also having the most fun.
It sounds so wrong, but I think it’s true. At least if you’re solving for a good (or even great) exit price and good terms.
Many business owners do it backward. They sell when:
•
SMB / LMM buyers --
If Axial created an option so that only sellers using e-NDAs could share a deal with you, would you turn that feature on to eliminate all deal flow that requires an offline NDA process?
If your plan is to sell your SMB portco to an up-market PE fund, think again and start cooking up your plan B.
Three charts unpack some of what's going on "upmarket":
1 / MM PE funds are stuffed to the gills with their own portCos and need to sell before they can buy ↓ :
Just dove into the holding company data that
@HoldCoConf
recently put together. Three most surprising things to me so far:
1 / HoldCos have huge divergence in approaches. More like family offices than PE. HoldCos are all over place in terms of strategy ↓, especially early on:
@ClintFiore
Presuming you really like the operator and you really like the business, then:
+ 10% preferred return, annually on the $2.5M
+ participation pari passu with his common in any sale
+ since he is putting no cash in, his ownership should vest similar to a traditional search fund
@ElijahSchaffer
@WallStreetSilv
Those who hold US government debt. China a major holder (which is a problem), Japan, big corporations, insurance companies...
@bradsvrluga
Unfair in my view. SVB was in the outer tails of the distribution in terms of asset duration risk and mismatch. Management must own that. Fear mongerers are always waiting for their moment. Banks must never give them their moment.
The PE spam machine is intense. Business owners are constantly getting solicited to sell. Fortunately, FinQuest has released a paper that quantifies the extent of this phenomenon.
The numbers are staggering.
here are some key charts. If you enjoy this 🧵, please share it!
Product development question for the private equity / corp dev buyside:
Some sell-side banks / brokers like to "vet" you before sending you the CIM.
For those that do, would you prefer that they "vet" you before or after you've signed the deal's NDA?
SMB and LMM Acquirers --
What kind of data / info on an M&A Advisor do you wish you had as you evaluate a deal they've sent you?
Asking for a friend 😎.
@SievaKozinsky
What's so unusual about America is that there are literally hundreds of thousands of these stories. More every year. Not an exaggeration.
Hopefully our politics and policies don’t ever kill the golden goose…
We just finished a review of 60 deals that broke under LOI. These 60 deals:
+ were all lower middle market U.S. businesses
+ between $500K and $9M of EBITDA
+ already had a signed LOI
+ fell apart in diligence
8 preventable mistakes killed these deals. Nothing new in these 8,
Other than the all-in pod and Invest like the Best, what are your favorite business oriented podcasts these days?
Yes I have a long flight ahead with the 4 kids 🙃
If you think paying the highest price is the only way to win a competitive M&A deal, you’re doing it wrong.
Your plans for the team matter.
Your plans for the business matter.
Your reputation matters.
Your references and what they say about you matter.
Perhaps most
50% of small business exits fail during the due diligence period.
It’s when the rubber hits the road.
This week, I’m speaking at
@MainStSummit
about 3 major reasons why deals break during due diligence:
1 - Business Underperformance during the Sale Process
If you’re
If you’re a business owner and you’re mulling an exit in the coming 1–2 years, the temptation is to start cutting corners to grow your EBITDA.
Do NOT do this.
Keep doing the “right thing” for your business.
Let me explain:
When you’re not actively planning for an exit,
New
@Zillow
data shows 1 in 3 would buy a home sight-unseen with virtual tools. A structural change in home-shopping behavior is afoot. The virtual tools home shoppers need to use today for safety will become tomorrow's expectations for convenience.
If you're considering selling your company, I have good news and bad news.
Bad news first:
It takes an average of 108 days for your signed LOI to fall apart. So from the time you agree on terms and price with a buyer to the time when the deal falls apart, it takes 108 days.
Navy pilot to MIT, then 10 years as an operator at Dell. Then all in on LMM manufacturing PE.
Enjoy my podcast conversation with Steve Cook, Executive Managing Director at LFM Capital.
Amazing what we're doing with
@zoom
. We just kicked off our first ever virtual deal sourcing conference connecting investors buyers and sellers of American small businesses. 100% virtual, all via Zoom, all day long, and then zoom happy hour. Thanks
@ericsyuan
😘.
Friendly reminder to business owners that selling your company doesn’t mean you have to stop being the CEO.
There are literally hundreds of private equity firms, family offices, and other flexible acquirers that can accommodate this preference. In fact, many of them prefer that
@brazenskin
@afdldsufhwef
@nader_haidar
@JackMa
He gets to say whatever he wants because In America your free speech is protected and in China it isn’t. They muzzled their doctors on Coronavirus and now look at the destruction to humanity.
@SMB_Attorney
Unsure about self funded EtA but Funded searchers take these deal sizes down all the time. So do portcos making add-ons.
There are no "gaps" folks!
Bain recently published a report on the adoption of AI in M&A processes.
Here are a few takeaways I got from the report:
𝟭. 𝗔𝗜 𝗶𝘀 𝘀𝘁𝗶𝗹𝗹 𝗶𝗻 𝘁𝗵𝗲 𝗲𝘅𝗽𝗹𝗼𝗿𝗮𝘁𝗼𝗿𝘆 𝗽𝗵𝗮𝘀𝗲 𝗮𝘀 𝗶𝘁 𝗽𝗲𝗿𝘁𝗮𝗶𝗻𝘀 𝘁𝗼 𝗠&𝗔
16% of the 300 (presumably large cap) M&A
Marks' Sea Change Memo is as important a read and reminder for SMB owners and acquirers as anyone.
You can get a liquid 5% risk free return today. 8-12% with some amount of credit risk. That's a completely different backdrop from the 2010-2020 decade of SMB and PE.
If you're
Read the latest memo from
@HowardMarksBook
to find out more about the sea change altering financial markets. This memo was originally shared with Oaktree clients in May 2023. Read/subscribe:
#OaktreeInsights
I have an awesome SMB target idea for a passionate NY’er who wants to stay in NYC — Local Law 11 facade remediation.
Let me explain:
The buildings of nyc are subject to something called Local Law 11, a rigorously enforced code that seeks to ensure building facade brick and
For those of you already underway on your EtA journey (pre or post acquisition), what would you tell your former selves?
Am presenting today at Columbia Biz School EtA / Search Fund class and would love to compile some good answers for the students...
Thank you in advance 🙏.
here come the HoldCos!
There used to be a couple handfuls of big industrial HoldCos and that was it (Tyco, Berkshire, Dresser, ABB).
The LMM HoldCo phenomenon is exciting ....
Q1 SMB M&A deal data takeaways:
+ industrials M&A grew year on year, everything else was flat to down
+ competition for deals increases 50% when you compare sub $1M ebitda to $1M to $3M ebitda
+ competition for deals doubles when north of $3M of EBITDA.
+ Despite the
@girdley
Paying them really well and focusing a huge amount of executive time training the people managers in the org.
When you’re well paid and you both love and feel you are being developed and challenge by your manager, life is pretty good —-
We spilled some ink over on the blog about our time at
@SMB_ash
. It was a great couple days. Excited for the next. Thanks
@Sam_Rosati
and
@MatthewGHinson
for the invite.
@RandBusiness
@RegZeller
Hey Rand - the
@AxialCo
Standard NDA is 2 pages and was signed over 10,000 times last year alone. It's pretty battle tested.
Download for free anytime for your own 3rd party use 👍.
I'm starting the search for a head of finance here at Axial. Open to fractional or full-time. FP&A and core finance leadership.
Drop me a DM if you are interested or have an idea or two. Repost if you're feeling karmic. 🙏
SMB M&A and HoldCo Operators:
Put aside the Berkshire model for a second and study IAC for a bit. Great podcast with IAC CEO Joey Levin, thx to
@patrick_oshag
and
@joincolossus
:👇
14/ I truly hope a great SMB EtA Operator takes on this opportunity. It's an incredible customer market, plenty of fragmentation, and many of the services businesses remain owned by the prior generation.
I'd love to help back someone who wants to go after it.
@SMB_Attorney
Privacy model for M&A very different than real estate,
@ClintFiore
nailed that point already. Real estate fungibility also very different than an Operating Company with employees and a Managment team.
Zillow is a challenged comp.
@WilsonCompanies
Overvalued over-funded SaaS ... It takes a really long time for boards to throw in the towel and take the write-downs from 2021 high water mark.
Another good home services business spotted from my indoor bike view:
Asbestos removal business:
- Regulatory demand drivers
- High downside to not treat well creates price insensitivity
- limited labor supply creates natural barriers
Lots of good HoldCo and EtA targets!
With
@HoldCoConf
right around the bend, excited to share one of my first podcast episodes with the one and only
@kelceylehrich
.
Thanks for the chat Kelcey... 👍
So dag-gone (sp?) exciting to see more great people organizing around the SMB buy & build opportunity in America.
@tsludwig
and
@JustinEBurris
-- time to get cracking on that final check box! Excited to see you all getting out of the blocks!
Required for launching a new fund:
☑️ The right partner (
@JustinEBurris
)
☑️ Funding - Millions of $ from leading business families
☑️ Compelling strategy - Search fund-like model w/ no PG, full $ support, long-term holds
🔲 8-10 top operators who want to buy & grow a SMB
Local monopoly / duopoly here in Jackson Hole. Post-Covid growth tailwinds are strong 📈 ...
Typically only the most patient of buyers can hope to acquire these beautiful local businesses ...
Leaving a big private equity fund to start an independent PE sponsor. Many ponder it, more and more are actually doing it.
My conversation with Nathan Chandrasekaran at Columbia River Partners.
Spent some time going through the
@MainStSummit
session list this morning.
What a group. Hard to imagine a more talented, successful, and caring group of people addressing more important topics for SMBs.
Excited to welcome everyone to Columbia in a few short weeks.
@XavierHelgesen
Accurate.
And it's only further compounded by the hyper networked nature of the tech founder community.
Slack forums, founder email threads. Boom boom boom. Everyone knew in about 30 minutes this AM.
Not your grandfather's paper-based banking world.
@DerrickPowell4
@ClintFiore
Hear you. But the capital going in needs a governance model that will work for the operator and also work for the capital. If it's just a board of 2, it won't work unless the operator is willing to cede control. And he won't.
So you need to add at least one independent.
Announcing
@MainStSummit
, an immersive two-day, international festival for small and medium-sized business owners, operators, and investors November 8-9, 2023 in Columbia, Missouri.
Join the list at . Passes will be $500 and go on sale in June.
What is the most important thing a business owner should do to prepare for an exit?
We asked this question to a subset of
@AxialCo
's most active small business M&A advisors who sell $5M to $100M businesses for a living.
The TLDR is:
✅ Have as much of the business running well
@WallStreetSilv
Hopefully there are far fewer banks lending to and banking America's cash-burning startups than there were banks making subprime loans in mid 2000s.
$13M consumer goods acquisition, sourced via Axial last year, 100% equity financed despite a healthy EBITDA margin.
Why do some acquirers not use debt? Let me count the ways:
- maximum freedom of action to invest in growth
- ability to survive through downturns
- long-term
@whentheresawill
There are hundreds of them. There are some outstanding investors committed to this model.
Whole conferences devoted to them.
McGuireWoods and iCapital off the top of my head…
400+ are sourcing on Axial.
Data / report is here:
Saw this business while on the indoor bike this morning.
These elevator inspect, repair and maintain businesses are fantastic
Stable regulatory demand, growing and ageing installed base, and recurring maintenance revenues.
Perfect HoldCo business ...
Excited to interview the founders of Associated Veterinary Partners for the podcast.
They're rolling up veterinary clinics in the LMM.
What would be your top questions to ask?
Founders are an-ex Carlyle deal professional and a top notch veterinarian.
Greatly enjoyed the chance to dive deep into acquisition due diligence with
@emilyleldridge
. Given that the folks at
@PermanentEquity
seeks to hold their companies for decades, it's a pretty key topic for them :).
Enjoy the conversation...
Sat down with
@AxialCo
’s CEO
@petelehrman
to discuss
@PermanentEquity
’s Do Diligence Confidently project and the broader M&A process.
We walk through:
- Project contents
- Seller optionality and decision power
- Diligence team
- Timing/pace
And more…
@patrick_oshag
S&P is up there!
- singular monopoly monetizing the S&P index and related financial products
- nearly perfect duopoly with Moody’s on bond ratings
- via Platts, they control pricing data for the crude oil market at Brent and Henry Hub
In 2021, “EBITDAC” arrived as a nod to COVID’s negative impact on profitability.
In 2023, we have moved on.
Now it’s the 4 Rs:
Recession
Resistant
Recurring
Revenue
🤔🤔🤔…
@fortworthchris
no easy answers ...but all major currencies are weakening relative to the $, which tends to help tamp inflation by:
- lowering the prices of imported goods, b/c the U.S. imports a LOT
- reducing demand for American-made exports (which hurts growth)
Just got my 2nd dose of the Pfizer vax, doing my 15 mins in observation.
What an astonishing demonstration of human genius, incentives, organized capital markets, and supportive gov’t policy to deliver a 90-95% effective vaccine in < 12 months. I’m proud to be a fellow human!
Happy Father’s Day to all the dads in the SMB economy 👍! You’ve chosen a harder but likely far more fulfilling road than the steady paycheck.
Don’t forget to thank and hug your families and spouses for the sacrifices they make to support the entrepreneur 💙.
I did a Q&A with two fascinating
@AxialCo
and members,
@SievaKozinsky
and
@XavierHelgesen
.
They run Enduring Ventures, a permanent capital holding company. Sieva and Xavier are proven tech founder / operators now doing M&A in the world of SMB.
It's worth a listen....
This week
@XavierHelgesen
and I have been on a few podcasts to share the story.
We share:
- why we formed a long term holding company
- our secrets to buying great businesses
- why private equity sucks 👎🏻
👇
@c_gro
Happy birthday. Start your day before 6am with a workout. Ritualize it. I'd be much further along in health and wealth had I done this in my 20s and early 30s.
For practical tips to build your exit team, check out these resources:
The CEO’s Guide to Building a Deal Team:
The Complete Guide to Hiring an Advisor:
Exit Planning Institute:
“Just be nice, be likable, be helpful, be inquisitive. All those things that your mother taught you? Just be that way and it will help you acquire. Just don’t be an a**hole.”
Simple, wise words on
@whentheresawill
’s SMB podcast “acquiring minds”
Buying / rolling up home or commercial services businesses?
This net migration chart an important chart to appreciate ... Getting this chart on a more granular county to county basis would be ideal.
A concise and piercing
@fredwilson
piece on nyc, gentrification, transportation, accepting its changes, acknowledging its crises, and focusing our energies on positively shaping its future.