Not finding the right company to acquire is the top challenge for middle market companies seeking to grow through mergers and acquisitions. According to Capstone’s survey of middle market executives, 28% noted lack of suitable companies as the strongest reason for not considering acquisitions as a tool for growth.

Finding the right company to acquire is critical to the success of a deal, especially for strategic acquirers who plan to hold onto the newly acquired business long-term.

The lack of targets may be because most leaders are only focusing on for-sale companies. Many wrongly assume that if an owner is not actively seeking a buyer, a there is no chance for a deal. This is simply not the case. Once you begin to consider not-for-sale acquisitions, the universe of options expands.

Pursuing not for-sale acquisitions allows you to take charge of your acquisition strategy and seek out the best companies to acquire rather than accepting whatever opportunity happens to come your way.

For many I realize the idea of pursuing not-for-sale deals can be intimidating, and many assume that if an owner is not actively selling their company that there is no chance for acquisition. This is simply not true. While searching for and approaching companies that aren’t seeking buyers requires a different approach, and more effort, than reacting to whatever happens to be for sale, there are some tricks to approaching these owners.

Finding an Owner’s “Hot Buttons”

One of these best practices is to find the owner’s “hot buttons” to determine what the right equation will be for them to consider selling. A “hot button” is any issue an owner would insist on addressing if they were to sell the company. Price might be one such “hot button” but it’s unlikely to be the only one. The owner may love his or her work, in which holding a position after the acquisition would be a priority. There may be a succession issue if the owner has family members in the company they want to take care of. The owner could have longstanding ties to the community—or may even be the biggest employer in town—and would want to ensure the business stays in the area.

Being informed about these “hot button” issues, and handling them sensitively, opens up the whole field of so-called “not-for-sale” companies.  Now, as you develop your acquisition strategy, you have far more choices, and much better chance of finding the company that truly matches your over-riding strategic goal.

Because approaching “not-for-sale” owners takes great skill, it often it makes sense to hire a third party expert who has experience in this work and is not perceived as any kind of competitive threat by the owner.  Your acquisition advisor can also help you tease out the precise equation that would prompt the owner to sell.

For more insights on middle market M&A, download our report State of Middle Market M&A 2017.

Photo credit: Kate Ter Haar via Flickr cc

Capstone Strategic’s survey of middle market executives shows most see the same (43%) or growing (31%) M&A activity in their industry. 47% are pursuing M&A in order to access new markets.

Capstone Strategic, the leading M&A advisory firm for the middle market, surveyed middle market executives from multiple industries on their growth and M&A experience in 2016 and their outlook for 2017. The survey was conducted in December 2016 and followed previous annual surveys of the middle market.

M&A activity across the board is mostly seen as the same (43%) or growing (31%).

Looking forward, our respondents are evenly split on whether or not they will pursue M&A in 2017. 35% are less than 50% likely to execute acquisitions and 35% are more than 50% likely. The top driver for pursuing M&A this year is access to new markets (47%).

As for obstacles to M&A, time and attention demanded by the process is the top barrier to pursuing acquisitions in 2017 (25%) while the most common reason for not considering M&A as a tool for growth is lack of appropriate target companies (28%).

The overall growth picture is improving. Those reporting modest growth rose from 58% in 2015 to 67% in 2016 and those reporting high growth grew from 11% in 2015 to 13% in 2016. Those reporting contraction shrunk from 9% in 2015 to 5% in 2016.

The business environment is seen by most in a positive light, with the majority reporting the same (50%) or an improved (35%) environment for growth. Compared to 2015, fewer executives saw a worsening environment for growth (8% compared to 13%).

Capstone’s CEO David Braun said: “The survey confirmed that 2016 remained an active year for middle market mergers and acquisitions and looking ahead, we believe we’ll see begin to see a renewed interest in M&A activity due to pent up demand and supply in the marketplace. 2017 presents a unique opportunity for companies that decide to execute strategic acquisitions.”

The full survey, State of Middle Market M&A 2017, can be viewed by clicking here.

 Feature Photo credit: dan Chmill via Flickr cc

Capstone’s survey of middle market executives shows 53% likely to pursue mergers and acquisitions in 2016 compared to 41% when last surveyed.

Capstone surveyed middle market executives from multiple industries on their growth and M&A experience in 2015 and their outlook for 2016. The survey was conducted in December 2015, and followed a previous survey in 2014.

Respondents gave a mixed picture of growth for their industries in 2015. More respondents saw extremes in their industries. Those reporting high growth grew from 4% in 2014 to 11% in 2015, while those reporting contraction grew from 2% in 2014 to 9% in 2015. Between these two poles, most respondents were seeing modest growth in their industries during 2015 (58%).

How likely is it that your company will pursue some form of M&A or external growth in 2016?

How likely is it that your company will pursue some form of M&A or external growth in 2016?

The environment for growth in 2015 was seen by most in a positive light, with the majority reporting the same (46%) or an improved (36%) environment.
M&A activity across the board in 2015 was mostly seen as the same (36%) or growing (33%) when compared to 2014.

Looking forward to the coming year, companies showed a stronger inclination to engage in M&A, compared to predictions when we last asked this question in 2014 (53% certain or likely, compared to 41%).

When asked about their growth goals, respondents were evenly split between “selling current products in new markets” (40%), “creating and selling new products in current markets” (36%), and “increasing sale of current products in current markets” (38%). (Some respondents were pursuing more than one goal).

As for barriers to engaging in M&A, these were largely internal, with respondents citing “lack of resources” (33%) as a primary reason not to pursue transactions.

Capstone’s CEO David Braun said: “This survey confirms what we ourselves observed, that 2015 was an active year for middle market M&A and 2016 is likely to prove an even stronger year. We see a growing polarization between growth-focused companies and those that are sitting on the sidelines. While many companies are still holding cash, more players are emboldened to expand through external growth. This includes acquisitions but also minority ownership deals, joint ventures and strategic alliances. When growth stagnates, M&A can often provide the fastest path forward. When growth is high, companies should seize the opportunity to plan for further expansion.”

The full survey, State of Middle Market M&A, can be viewed by clicking here.

Capstone’s State of Midmarket M&A Q1-Q3 2014 Update indicates a steady growth in midmarket mergers and acquisitions.

We surveyed midmarket executives from multiple industries to learn how the first nine months of 2014 matched expectations from 2013, and to indicate any new trends in midmarket M&A. The survey was conducted in October 2014, and follows a similar survey conducted in December of 2013.

Midmarket M&A activity continued to increase despite economic uncertainty. More than half of the respondents (60%) engaged in M&A or external growth activities in 2014 and 44% are considering M&A in the last quarter of 2014.

Of the midmarket executives polled, 64% reported “modest growth” in their industries compared to 62% in 2013. “High growth” responses dropped by half from 8% to 4%. Perhaps most significantly, 24% of respondents reported stagnation in 2014, double the amount reported in the same period last year. This holding pattern may indicate continued anxiety about the economy, the political environment and government regulation.

David Braun, Capstone’s founder and CEO, noted, “As organic growth opportunities remain modest or stagnant, executives are continuously looking for new ways to grow, including mergers and acquisitions.”

While midmarket executives seem to be showing a renewed interest in M&A, they acknowledge there are hurdles to embracing external growth. Lack of time, people and money continues to be the greatest barrier to pursuing mergers and acquisitions with over half (52%) reporting insufficient resources as their biggest challenge. Insufficient resources also topped the 2013 chart (54%). 24% of those surveyed also said slow decision-making continues to be a hurdle.

In 2014, the same percentage of executives as in 2013 (28%) reported that they were concerned about the lack of suitable companies to purchase. About this Braun said, “It may be difficult to find suitable companies to acquire among those that are offered for sale. Restricting your search to for-sale opportunities is usually a mistake. At Capstone we encourage clients to expand their search and actively pursue not-for-sale acquisitions.”

Based on its survey and firsthand contacts with the market, Capstone predicts the economy will continue to recover, and as it does more midmarket companies will seize on the opportunities presented by external growth.

Braun said, “External growth embraces any strategy that leverages a relationship with another company, including strategic alliances, joint ventures, minority interest and acquisitions. When it comes to pursuing an acquisition, here’s one principle we’ve learned from years of experience: They are all for sale…for the right equation.”

The full survey, State of Midmarket M&A: Q1-Q3 2014 Update can be viewed at www.SuccessfulAcquisitions.net/report.