InSight

Exit and Growth Strategies for Middle Market Businesses

Growing Your Business Through Capital Partnerships

By Gerald W. Lindsay | Jul 09, 2010

Business owners know everything there is to know about running their business, whether it be heavy equipment sales or healthcare services. As an M&A advisor, I have spent my life walking alongside business owners as we tour their facilities talking about products, sales, employees, competitors and every other aspect of their business. However, most become uncomfortable when we begin discussing how to finance growth.

If you are a growing company you will have cash flow problems. Do not be lulled into the belief that because sales continue to increase that your business is growing at the best pace. Optimum business growth is reached through a combination of sales and capital infusion.

Banking Problems
In today’s economy, banks have tightened their lending standards. Many owners have developed banking relationships throughout their years in business, but in today’s lending climate they are not able to get the funds they need. Because of this, it is a great time to consider a capital partnership.

A Solution
If you are like many business owners, you may reach a crossroads where taking on a partnership makes sense. Capital Partnerships mainly come through two channels: Private Equity Groups (PEGs) or Strategic Buyers.

When many owners think of the typical transaction they think of a majority buy-out, time to retire, but retirement is not the only option. Capital Partners are willing to make either majority OR minority investments. They often prefer the management team to stay in place and operations to continue as before. They are simply making an investment in a company they feel has solid foundations and most importantly – room for growth. These investors do not require control because they are backing companies they believe in, companies with a solid history of growth, a capable management team and the potential for future expansion.

How to Choose a Capital Partner:
When choosing a partner there are several factors on which to focus:

  • TRUST – You need to be working with individuals that you trust and like. If you don’t care for the group, save yourself some time and walk away. Remember this is a partnership and you will need to work together to be successful.
  • FUNDING – Your partner needs to have the ability (either through fund raising or through already allotted means) not only to finance the transaction, but to have capital for growth. Going forward you will want to look to your partner to essentially be “the bank” for the company.

There are many options to owners of middle market businesses looking to grow their business or prepare for retirement, but often a Capital Partnership is the most attractive. An M&A advisor can help you begin the process of exploring capital partnership.

posted by Gerald W. Lindsay


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