Strategic Investors – Why Serial Acquirers May be Interested in You
A few months ago I published an article regarding serial acquirers. I used this term to describe corporate strategics that make acquisitions year in, year out, regardless of economic conditions or geo-political instability. They are constantly looking for new ways to expand market share, gain access to new products, and obtain innovative technology.
Corporate strategics are the smart ones because they know that the fastest and most economical way to grow a business is via strategic acquisitions. The source of our data was Buyouts, a Thomson Reuters M&A-focused publication.
At the mid-point of last year they analyzed the most active strategic buyers from January of 2010. Here is the table containing their analysis of the top 10 most active acquirers during that 16-month period:
- 3M = 26 acquisitions
- GE = 24
- ABB, Ltd = 20
- IBM = 17
- Caterpillar = 16
- HP = 14
- Ametek = 8
- AMEC = 8
- BAE Systems = 8
- Roper Industries = 5
The top two companies on this list, 3M and GE, have historically been two of the most active buyers in the world during the past 10 years. As you can see, on average, they both made nearly two acquisitions every month during this time frame.
If you go back and look at the last decade, this trend has been very consistent. Although both companies have a reputation as being R&D focused, and certainly they do spend quite a bit on internal product development every year, they know too well that it is more economical to buy technology than to develop it all in house. FYI, according to CapIQ, since this data was published last summer, 3M has made an additional six acquisitions (Capital IQ is a leading provider of data and analytics for global financial professionals).
Fly Fishing and 3M?
I thought I would do a little digging and take a look at some of the 26 acquisitions that 3M made during this time frame. One of them really caught my attention because I simply had no idea that 3M was in this industry.
“3M announced today that it has signed a definitive agreement to acquire Ross Reels, a Colorado-based manufacturer of fly fishing equipment and accessories.
Ross Reels is recognized as one of the top fly reel manufacturers in the United States. Its full line of products includes high quality fly rods, complete fly fishing outfits, reel outfits, rod cases, fishing pliers and other outdoor related products. 3M, through its Scientific Anglers brand, offers a wide variety of products and equipment for all fly fishing experiences, including fly lines, reels, rods, boxes and instructional DVDs.”
Now some of you avid fly fishermen may have known that 3M owns Scientific Anglers, but I would venture to guess that most of you did not. The reality is there are literally thousands of publically held companies in the U.S. and throughout the world. Companies like 3M (and GE as well) have literally dozens of subsidiaries in hundreds of industries. Given that corporate strategics are currently sitting on over $2 trillion in cash, is it any wonder that they are aggressively looking for strategic buys right now?
Lower Middle Market Interest
Here is another key takeaway from this: At the time of the acquisition, Ross Reels employed only 25 people at its single facility in Montrose, Colorado. Although the terms of the deal were not announced, it is safe to assume that Ross Reels was truly a lower middle-market company, which Generational Equity defines as being a company valued below $50 million. Many of you reading this blog fall into that size category as well.
I would venture to guess that prior to reading this article you would have bet that a company the size of 3M (with a market cap of over $60 billion) would never look at a company your size. Well if they have subsidiaries in your industry, they sure do, just like 3M did with Ross Reels. According to Hoovers, Ross Reels is currently generating $4.6 million in revenue, making them similar in size to lots of lower middle-market companies.
This is vital to remember as you begin to think about buyers for your company as well. Very large corporate players have dozens of subsidiaries, many of which are probably not much larger than your company. Many of them are actively acquiring on an ongoing basis, and you may not even be aware of it.
The Keys to Finding Optimal Buyers
This is why I would highly recommend that you obtain the services of an experienced M&A advisory firm when you begin to take action on your exit plans. Firms like Generational Equity have two things that you do not:
- Access to thousands of dollars worth of M&A databases
- Extremely well connected, experienced deal makers
These two factors give you a better chance of finding an optimal buyer than if you attempt to do so on your own. Don’t just take our word for it; last year Generational Equity was named M&A Consulting/Advisory Service firm of the year by The M&A Advisor. If you would like to see further details on this award, please click here. Being recognized by your peers in any industry is a real honor, and it tells you that our professionals close deals. That really is all that matters when you think about selling your company.
If you would like to learn more about serial acquirers or if you have questions about how and when to exit your company for the most profit, I would encourage you to attend one of our free, no-obligation M&A workshops. Click here for a summary of some of the topics we cover in our meetings.
Again, keep two things in mind: Leading corporate strategics are nearly ALWAYS looking for deals AND in many cases, they buy lower middle-market companies just like yours. So don’t rule them out as you approach the market with your investment opportunity!
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