The amount liquidity in the market is both good and bad, according Ouroboros Group LLC General Partner Samantha Ory. For investors, it drives competition to win over CEOs and their companies.
"Being in private equity for so long, you realize that it's a bit of a sales job on our end, too, and you forget that," she says. "You say, well, we're giving you all of this money, and the CEO goes, well, no, what can you do for me?"
One thing she says a buyer in competition for a deal can do is work to achieve the top three to five goals they have post close. Want do they want to get out of a deal? Is it to be completely out of the business, solidify their legacy?
"We always put together just a very thoughtful memorandum and post-close growth strategy of what we can do," she says. "I think that's always how almost every conversation starts with a CEO. And we figured out really quickly, do we think that this is a good fit on both ends because if it only works for the CEO but not for us or vice versa, it's not going to work in the long run."
It's not always the highest valuation a CEO is after. Those who stay with a business after selling a majority to private equity, she says, can make much more money post close with another bite of the apple if they see a very strong, thought out growth strategy.
"That's something that is changing with this massive amount of liquidity that's in the market," she says. "You have to go above and beyond as an investor now to do your investing."
Nelson Mullins Riley & Scarborough LLP Boston Managing Partner Brian Moore says looking at it from the company side, with the amount of options out there now, the synergies become really important.
"We have a really successful company that's in the financial services space and when they were looking at suitors, they basically looked at large private equity funds, but it was the idea that they could then take their services, sell them into that private equity fund's portfolio companies, it became a game changer for them," he says. "They already had accelerated growth but now you've got an investor who's committed to your company and basically willing to sell your services into their portfolio companies. So, there's a lot of ways to make one plus one equal five or six."
That, he says, is what companies should be looking to do because there are so many alternatives in the market. The tendency with early-stage companies to get hung up on valuation and the amount they're going to raise. But, he says, more often it's more important to find the right partner than it is to get the exact right valuation.
"It's immaterial if you're successful whether you were at a $10 million valuation or $7.5 million valuation," he says. "If you get the right partner, you got a much better chance of success than whatever the number was at the beginning."
Dr. Dental CEO & Co-Founder Alex Faigel says his company's partner had a great reputation but also had a track record of success working with another company in his industry. That meant he had a dedicated, smart partner who brought not just capital to the table but also know-how. that proved valuable when looking across offers.
On the valuation front, he says while there were differences, they were roughly in a tight band together. That why he finds it important to work with the right people.
Mirus Capital Advisors Partner Brendan Kiernan says it’s also important to understand the use of capital in order to target the appropriate partner.
"Oftentimes with middle market companies, you're dealing with business owners who need help to get to that next level of growth," he says. "Bringing in folks who have scaled a business, who have experience doing that and can provide that that outside resource beyond just the capital, can be hugely valuable for a lot of these businesses"
Ory, Moore, Faigel, Kiernan and Cambridge Savings Bank's Stephen Leonard spoke at the Boston Smart Business Dealmakers Conference about financing business in the lower middle market. Hit play to catch the full panel discussion.