Who are the market's most active buyers?
- By Kate Troendle, Marc Marlin
- Nov 08, 2018
Having previously shared recent M&A trends across the public government and technology services (“GTS”) marketplace with respect to private equity, public company, and nontraditional buyers, we will now share buyer trends for the fourth and final group in our series: mid-tier private companies.
While media attention focuses more heavily on public company transactions, the most active buyer category since 2017 has been privately held, non-private equity-backed businesses, having represented nearly half of all announced GTS transactions. Notably, nearly all were less than $100 million in revenue and/or transaction value. Mid-tier companies have turned to M&A to add scale, capabilities, contract vehicles, and/or full-and-open revenue, to be more competitive in today’s marketplace and/or to augment set-aside transition strategies.
Companies such as American Systems, Buchanan & Edwards, MAG, SOS International, TeraThink, US Falcon, and Xator have all made strategic investments to supplement organic growth strategies. Privately owned companies provide great exit opportunities for smaller business owners, especially in terms of culture and an immediate, and much needed, scale boost in today’s highly competitive middle market.
The strategy to combine forces with other similarly positioned businesses that share alike cultures, missions, and strategies, is attractive and increases scale and capabilities. Additionally, these transactions help to position mid-tier businesses for more lucrative exit opportunities down the road.
The role of private equity and privately held businesses has become increasingly important in the context of M&A over the past several years as public company buyers have become more selective.
Since 2017, private equity made approximately 60 acquisitions in the GTS marketplace, compared to just over 30 in 2015 and 2016 combined. Conversely, public buyers have made 35 acquisitions since 2017, compared to 42 in 2015 and 2016 combined. Privately-held companies announced 42 deals in 2017 and 22 in the first three quarters in 2018, compared to 29 in 2015, representing a noticeable uptick. With middle market companies, whether private equity-backed or privately held, investing more heavily in acquisitions to add scale and capabilities, the number of larger mid-tier businesses (defined as those greater than $100 million in enterprise value or revenue) continues to rise, and M&A is a key driver.
The number of deals greater than $100 million of enterprise value or revenue is on pace to reach (and possibly exceed) 25 this year, nearly double the number in both 2015 and 2016; the bigs are getting bigger. The middle-market and GTS industry is strong from top to bottom, which is a positive sign for M&A as we round out 2018 and enter 2019.
However, when thinking about your likely buyer, it may not be who you think!
Kate Troendle is a director at the investment bank KippsDeSanto.
Mark Marlin is a managing director with the investment banking firm KippsDeSanto.