Trends in Middle-Market M&A

As crazy as the last 12 months have been for business owners, there have been some positives, and there are certainly many opportunities for growth moving forward this year.

Such was the message at ACG’s February breakfast meeting, “Trends in Middle-Market M & A and Capital Availability,” featuring a panel of Christian Scharosch, with 1248 Holdings, Paul Maxwell of Great Range Capital and Lauren Ruane of JP Morgan, and moderated by Bill Conway of CC Capital Advisors and former ACG Kansas City president. 

Prior to the pandemic hitting, the economy was rolling along. When it abruptly stopped last March, many businesses took the time to think about what would be next, Maxwell said. 

“For many people it was a catalyst for conversations with groups like ours,” Maxwell said. “The pandemic had people thinking about the next phase of their business, of ownership.” 

For Ruane, who works with many health care clients, the pandemic offered the opportunity to help them move forward quickly with digital offerings from education to patient visits to billing and scheduling. 

The big picture says that capital is trending toward pre-pandemic heights. 

“From March through the summer we were in defensive mode,” Scharosch said. “From the summer until now, more lending has been ramping up organically.” 

The uptick started in the last quarter of 2020 and has continued into this year, 

So, what are investors looking for today? Stability and a strategy, Ruane said. They want to see that a business is COVID-resistant (to the extent that one can be), Scharosch added.

Investors are ready and willing to put their money into projects, though, Maxwell said. There are a lot of options for business owners today. 

In addition to traditional modes, SPACs are becoming more and more popular. SPACs, Special Purpose Acquisition Companies, were a $20 billion business in just January alone, Conway noted. 

SPACs make going public more efficient.

“We continue to see a lot of excitement around the product, with a lot of focus in health, tech, clean tech and fin tech,” Ruane said.  

The outlook for Kansas City companies looking for capital, and those with capital to give is looking good, too, the panelists agree. 

“I think business owners need to look at who they are partnering with,” Maxwell said. “Who are you going to own equity with? Are they good people? Do they care about your legacy?

“It’s important to have a plan and to know what’s important to you beyond valuations.”

Kansas City capital remains most plentiful and easiest to access if you are an early stage company. 

“Kansas City needs to build the next stage,” Scharosch said. “Still businesses are going outside Kansas City for late-stage funding. 

Conway asked the panelists what words they thought would exemplify 2021, after a 2020 built on pandemic, pivot and PPP. 

“Thrive, I think,” Ruane said. “We learned a lot of lessons in 2020 and have put them into practice.” 

For Scharosch, he’s watching the recent transactions involving Robin Hood and Reddit with interest, wondering where the power of retail investors will land next. 

“It’s a good year to sell,” Scharosch said.