Andy Greenberg, G.F. Data’s CEO, recently penned an article “Where Have all the Sellers Gone?” shining a spotlight on the lackluster volume in middle market business sales. His ultimate point was many middle market business owners don’t find the need to sell, instead choosing to continue to run their businesses long after the typical age of retirement and continue investing in the business and industry they know best, resulting in low inventory of companies on the auction block.
This may be only part of the story. This premise focuses on closed transactions and does not take into account the total pool of middle market businesses for sale today. Maybe the questions shouldn’t be “where have all the sellers gone?”…but rather what buttons need to be pushed for middle market business buyers to say “I’ll take it?”
We know that above average performing companies with management continuity plans post sale tend to reap higher valuation rewards. But what hasn’t been clear is how many middle market companies on the market today aren’t being sold because they just don’t hit all the buttons. Private equity firms review marketing materials on hundreds of companies each year, yet select very few for their own portfolios. So what about those companies with less than above-average financials…what happens to them? The business may indeed sell, but likely not at the asking price. Or, the business may sell to a different type of buyer. Strategic buyers, management buy outs and employee stock ownership plans all fill a nice niche when private equity buyers do not come knocking. Then again, the business sale may be put on hold while the company is “revitalized.” Given sufficient time and resources, this may be the best strategy to prepare a business for sale in the hopes that when it does go to market, all the buttons are pushed regardless of the buyer.