Growth in “Entrepreneurship Through Acquisition”
Insights by Peter Watson.
We read with interest the M&A Mid-Market Trends report published by Dealsuite.
Of particular interest was the growth in Search Funds, something which started in the US but which is now becoming more commonplace in the UK. This is essentially a Management Buy-In (MBI) but, involves a would-be entrepreneur (“WBE” – assuming you can accept this widening of the definition of Entrepreneur) establishing a source of funding (usually via some high-net-worth individuals – HNWIs) and then seeking to find suitable targets. Once a target is found, the HNWIs decide if they want to participate and then the business is acquired via a combination of debt and equity.
Our personal take is that it is always important to establish the credibility of both the would-be entrepreneur and their sources of finance. Bankers have traditionally been wary about MBIs due to a chequered track record. Success is generally much more likely when the WBE has good experience in the sector – and having had significant management experience, or if relying on the current management team, has a good track record in Private Equity investing.
On a different note, the recent global outage caused by a CrowdStrike update served to highlight the vulnerability and interconnectedness of the global IT structure. We were generally unaffected but did lose the use of one of our M&A databases.
However, SMEs are not immune and a number of businesses that we work with have suffered from a cyber-attack or fraud. If your IT provider is not being pro-active in this regard you should look to change. Buyers are going to be increasingly concerned about the vulnerabilities they are acquiring.
Finally, with one thought on the Paris Olympics, I wonder how much business can learn from the athletic disciplines? There is clearly a large industry in motivational speaking from former athletes, but I personally would like to hear more from Max Litchfield. He has come agonisingly 4th in three consecutive Olympics – despite posting a British record time that would have won Tokyo 2020 – and he even managed a laugh in the post swim interview! I’m sure that something positive should come from that amazing effort.