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the real deal

The one thing that founding owners of successful mid-market companies in the transportation and logistics industry know is a hot deal when they see one....

The one thing that founding owners of successful mid-market companies in the transportation and logistics industry know is a hot deal when they see one.

And the hottest deal available right now is in their own companies.

Many company owners, presidents and other executives who have struggled to build a very successful company have years of blood, toil and sweat invested. They have faced financial hurdles, demanding customers, and fierce competition, hired and trained staff and usually poured every extra dollar back into their firms.

When the founder of a family-owned business that has operated for 35 years decides to retire, the dynamics are generally much more challenging than in other privately held companies. That is because he or she must weigh emotions as well as skill sets when evaluating which, if any, of the children should take over and in what roles.

The DAK Group, a New Jersey-based investment banking firm specializing in private company sales, in conjunction with the Rutgers University School of Business, studied merger and acquisition activity among 211 privately owned companies and reported that two-thirds of small- and mid-sized business owners plan to sell their companies within five years and that the majority of these plan to make an acquisition prior to the sale. The companies surveyed were businesses with sales ranging from under $5 million to more than $50 million.

Why all this increased activity?

The study finds M&A activity being driven more by success than by fear of failure. Only 6% of the owners cite lack of capital as their reason for selling, down from 20% in last year’s study. The main reasons for owners planning to sell their businesses were attributed to lifestyle factors, competition and changes in the market, and risk reduction.

“Times are good, but business owners are looking to the future with foreboding,” said Alan Scharfstein, president of the DAK Group. “A number of industry sectors are rapidly consolidating. Companies that plan to remain independent are rushing to strengthen their market position by making strategic acquisitions. They’re bidding up the value of attractive niche companies and giving owners a chance to sell at a premium.”

Unless a business is of a certain size, they’re not going to hit the radar screens of these companies who are doing the buying. That’s a big problem, because I think many of those local companies on the market are going to be too small to really fall within the scope of these investors and buying groups who are doing the consolidating. The little guys are going to be left out in the cold.

So, if you are the owner of a lower, successful mid-sized valued company, where does this leave you?

The new moguls of capitalism are here – private-equity groups – and that’s good news for privately held companies, particularly closely held family operations. In fact, most private-equity firms in today’s market are constantly scouting for deal opportunities. There is a tremendous amount of money on the sidelines waiting to find a home. Part of that buildup of available money is a result of a lack of suitable alternative investments. With low interest rates, fixed-income securities such as corporate bonds and bank instruments are not attractive investments. Add public corporate mismanagement and criminality issues (World Com, Enron,HealthSouth, etc.) that have been going on, and the result is more money going out of stocks into private-equity groups where the perception is that the investment is safer. Indeed, if you examine all the major corporate scandals of the past 25 years, none occurred where a private-equity firm was involved.

Teaming with an experienced M&A advisor that has relationships with the private-equity community and understands their parameters can unlock that opportunity.

In the current market, it is a “perfect storm” – and hot deals are there for the taking.

Mark Borkowski is president of Toronto based Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of companies in the transportation industry. He can be contacted at

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