The way Larry Otto sees it, M&A today should have a place in the minds of every business owner.
“Companies are always trying to enhance value,” says the president of U.S. Bank in St. Louis. “If you can't get value through organic growth, you've got to try to find it differently. Acquisition is certainly a way to do that.”
Otto isn’t alone in that feeling. Smart Business Dealmakers spoke with entrepreneurs, investors and the advisers who handle transactions every day about the role of mergers, acquisitions and dealmaking in business today.
The consensus: Business owners can’t afford to ignore M&A — even if they’re not actively looking to buy or sell. That’s because competitors are out scooping up a new technology, diversifying into new geographies, raising growth capital, and implementing long-term exit plans that help them run their companies better.
Here’s what some of St. Louis’ top dealmakers had to say.
The Impact of Private Equity
Compared to years past, U.S. Bank’s Otto says he has the sense that M&A is more top-of-mind today than it has been. A key reason he cites for that is the proliferation and influence of private equity.
“As capital seeks return, you've seen over the last decade or more private equity become quite important,” he says. “It is a way for companies to realize value differently than selling to someone else in their industry. Capital-seeking through private equity has been a major force here.”
Private equity firms have an estimated $2.5 trillion ready to invest in companies, real estate, infrastructure, natural resources and debt, according to data provider Prequin. Even so, tens of billions more are pouring into new investment funds.
“There are a lot of options now for private business owners to contemplate as they think about a potential exit or bringing on partners,” says Thompson Street Capital Partners Managing Director Jack Senneff. “A lot of us are reaching out proactively to CEOs and business owners. So I think there's an awareness now that probably didn't exist to the same extent 10 or 20 years ago.”
But M&A shouldn’t just be a consideration for those looking toward life post-ownership. Business owners and executives in the prime of their careers and business lifecycle can use M&A to drive operations, shape how the company approaches the market, how it accesses capital, and how aggressively it grows.
“It opens up a new set of opportunities,” Senneff says. “M&A is not just a full exit — I think historically that was kind of the misconception. There are a lot of opportunities out there for a business owner.
“One way to grow could be bringing on a partner for a liquidity event, but also maintaining an equity stake moving forward and buying other businesses or expanding into new geographies or new services, or investing in R&D,” he explains. “Keeping those options in mind and thinking about those options, which are not just pure exit options, could be really exciting for business owners.
“And if you're thinking about those and thinking about ways to grow, that’s always helpful as you're running a business,” he adds.
Kasey Grelle, president and CEO of Gateway Blend, is an active participant in the rise of local M&A activity. In the past four years, Grelle has brought four companies into the fold at Gateway Blend, a digital media company that owns and operates a portfolio of more than 14 web destinations that reach more than 120 million users each month,.
“In the media space, it's definitely a buyer’s market,” Grelle says. “There are a lot of businesses out there that have not been as diligent about putting together a sound business plan or really focusing on building a good culture, a good company, and making money.
“A lot of people went after venture money a couple of years ago and then built big teams with really expensive operations, but didn't focus as much on making money,” she says. “Some of those companies, when the VC money dried up in the media space, are having trouble. So it is actually a buyer’s market for us right now and you're seeing a lot of companies going out there and doing roll-ups, and we see a lot of opportunity to do the same and plug them into where we think we can have a strategic advantage.”
It Pays To Make Connections
David Grigsby, the co-founder and partner at TBS Falcon who nearly landed the $3.1-billon P&G divestiture of Max Factor CoverGirl in 2015, suggests that the idea of accessing growth capital might not be penetrating as deeply into the lower middle-market companies.
It’s a matter of perception, Grigsby says. In many cases, smaller mid-market companies don’t think M&A applies to them. But they’re missing out.
“I don't think you're too small — once you've gotten some kind of a track record — to start developing M&A relationships,” Grigsby says. “These are the folks that can help you eliminate certain types of mistakes or build a relationship with you and then they can understand your business, you can understand how their investment criteria and profile operates and how it could be a value-add to you. It's building a relationship. So I think there's work to be done there.”
From Grigsby’s perspective, it’s a significant benefit for companies to become more sophisticated in their understanding of all of the different capital-raising options that exist to help their companies grow.
“Because it’s potential lifeblood,” he says. “It is capital — equity or debt. And most companies, unless you are in some unique niche, can't sustain growth just on organic. You just don't have the time to put into it as an M&A professional is able to.”
Growing The Business Community
Not only is M&A a means of growth for individual companies, but it also can be something more significant, Thompson Street’s Senneff says.
“It certainly can be, when pursued for the correct reasons, not just a growth engine from a financial standpoint, but also can create new jobs and can bring more investment into our community and our region” Senneff says. “There are a lot of different aspects that can be really attractive for not just individual businesses, but for our entire region.”
M&A should matter to every company, regardless of size or stage in their lifecycle, these executives agree. Its influence is impacting the market at every level.
“All of that comes together in the story of capital flow that goes throughout a community,” Otto says. “St. Louis can't get enough capital flowing through this community to help make it grow — the more the better. And we'd like to see a lot more capital flowing in than flowing out. There are constituents around the table of every transaction that are impacted. It's not just the buyer and the seller. It's everybody.”