+50mm EV Deals
December 16, 2024
by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA
Any stories of searchers successfully closing +50mm EV deals?
December 16, 2024
by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA
Any stories of searchers successfully closing +50mm EV deals?
from University of Leeds in New York, NY, USA
Strategics and private equity firms can often justify more aggressive valuation multiples due to their ability to generate significant post-acquisition synergies. Strategics can integrate the acquired business into their existing operations, creating immediate value through cost reductions (e.g., shared services, supply chain efficiencies) and revenue enhancements (e.g., cross-selling and upselling to a larger customer base). Private equity firms, while less focused on integration synergies, often leverage their scale and operational expertise to streamline costs, optimize capital structures, and unlock growth, which allows them to underwrite higher valuations. In contrast, independent searchers typically lack the infrastructure and synergies to justify higher multiples. Searchers must rely primarily on the standalone cash flows of the business to generate returns, making it more difficult to compete in the higher end of the market where premium valuations are prevalent.
Family offices, private equity firms, and strategics generally have access to more sophisticated capital structures. PE firms, for example, can leverage a mix of equity and debt financing to optimize the capital stack, increasing their bidding power without diluting returns. Family offices, with patient capital and a long-term investment horizon, can take a more flexible approach to pricing and deal structure. Independent searchers, on the other hand, typically rely on debt-heavy structures, SBA financing (if applicable), or smaller pools of equity raised from high-net-worth individuals. These constraints often limit their ability to compete on price, especially as deal sizes approach $50M+, where the capital required significantly exceeds the typical search fund investment range.
Strategics often have well-established shared service functions—HR, IT, finance, legal, etc.—that can absorb many of the overhead costs of an acquisition. This enables them to realize significant cost savings by eliminating redundant expenses at the target company. Additionally, private equity firms pursuing a platform strategy can achieve similar benefits by integrating add-on acquisitions into existing portfolio companies. Searchers, operating as standalone entities, rarely have the capacity to achieve such efficiencies, further reducing their ability to justify higher bids.
Strategics can often unlock growth opportunities unavailable to searchers, such as leveraging the acquired company's products or services across their broader customer base, expanding into new geographic markets, or bundling complementary offerings. Private equity firms bring deep operational expertise and networks, which can help scale the business faster through initiatives such as digital transformation, talent acquisition, or strategic partnerships. Searchers, by contrast, often lack the resources, industry connections, and breadth of expertise to execute similar growth strategies. As a result, their value creation model is largely confined to organic growth and operational improvements within the acquired business—a narrower path compared to institutional buyers.
Sellers of $50M+ businesses often prioritize certainty of close, which is where private equity and strategics hold a significant advantage. Their track records, well-established diligence processes, and ability to move quickly through negotiations inspire greater confidence in their ability to complete the deal. Independent searchers, particularly those with limited experience in transactions of this size, may struggle to compete on these dimensions, introducing perceived risk for sellers.
While independent searchers can find success in acquiring businesses, transactions at the $50M+ level are heavily tilted in favor of family offices, private equity firms, and strategics due to their ability to pay higher valuations, achieve synergies, scale the business post-acquisition, and close deals more efficiently. Searchers generally find greater success in the lower middle market, where valuations and competitive dynamics are more aligned with their resources and skill sets.
from Wesleyan University in Granville, OH, USA
Even though I don't have a definition of ETA and where the boundary might be, I agree that $50M EV requires capabilities outside the space. A corporate acquirer can spend hundreds of thousands of dollars in diligence and legal support. The portfolio value of an equity investor (or syndicate) is at least hundreds of millions to finance a deal that size, regardless of deal structuring. That's swimming in a different pool. Just like there's a 'know it when I see it' line between VC and PE, there's a line in there somewhere, well below $50M, where it's no longer ETA. It requires a different set of tools to assess risk and value for the transaction plus a different set of tools for creating value in a business of that size.
As a practical matter, I have sell side clients in this size range. If an individual (not on behalf of a fund or corporation) approached me, the next conversation after introductions would involve understanding their experience in the sector and how they would finance a transaction. If they are financing it themselves, I would ask for a bank letter verifying funds (and asking why an UHNW individual is doing this themselves). If it's an investor, I'm asking for both a bank letter and to meet the investor. Even if they have the money, both sector experience and transaction experience are a must to continue the conversation.