Companies in the lower mid-market often are surprised when they attract attention from larger entities, even those whose balance sheets dwarf the target.
I moderated a panel discussion on Strategic Sales at the May M&A Source conference. The session looked at three case studies:
- A small regional bread company in the organic space sold to a public company
- A transportation company with $1M in revenues sold to a $3B conglomerate
- A gluten-free baked goods company acquired, built and then resold
Why do small companies attract this kind of interest?
Small companies often are more agile.
Large companies have difficulty innovating quickly enough to capitalize on trends. Two of the case studies were in sectors previously considered alternative but now considered mainstream: organic and gluten-free.
In an article in Food Dive, Carolyn Heneghan notes that consumer tastes are rapidly changing and popular brands are losing their luster to new products. Big food companies need innovation and sometimes find it more efficient to buy a company than start from scratch.
Small companies often have a desirable market niche.
In the transportation company case study, the operator had developed deep inroads in a foreign market. The buyer group wanted to reach that market quickly. It was more productive to buy the tiny company than to start from scratch.
A good M&A process is critical.
With the bread company, the advisor worked with owners to delay a sale for over a year while the production methodologies, distribution network and internal operations were fully documented and put in order to satisfy an acquirer.
With the transportation company, the M&A advisor insisted on preparing a full sales information package even through there was really only one logical buyer. It would have been tempting to just rely on an exchange of documents. But the information package helped show the opportunity clearly to the ultimate buyer.
With the snack enterprise, the investment group developed a detailed growth plan and then worked with the management team to rapidly ramp up production and sales. The company went from $7 million in sales to over $120 million within three years.
These results are extraordinary, and can’t be duplicated in every case. However, they illustrate the value of a good advisor and a good M&A process.