Insights

Middle Market Privately Held Firms Fearful of M&A
POSTED 1.1.20 M&A

Every business must have some plan for growth. That’s obvious. But how they achieve that growth is another story.

There are basically two methods:

  1. Organic growth
  2. A merger or acquisition

Companies usually use a blend of both. But those that try to rely solely on organic growth, which takes a significant amount of time, even with the best businesses, will be left behind in the marketplace.

M&A is a much more effective choice to add to their product offering, boost their capabilities, reach new groups of consumers, or expand their geographic presence.

But there is an issue, at least among middle market, privately held firms. They might understand that organic growth is too time-consuming, yet they won’t move forward with promising M&A deals that seem like a good fit.

In fact, a study from Synrgix, a business application development and consulting company, found that one out of 5 of the 25,000 middle market companies surveyed that are looking to execute an acquisition, actually do so.

Why is this the case?

There are several factors at play.


Mainly it’s fear, due to lack of expertise… lack of time… lack of resources.

These are relatively small, privately held companies. They don’t have an internal corporate development department. Besides, they don’t have the experience or knowledge base in how to conduct M&A deals, so they decide not to do it.

It takes time to search for targets – and it always helps if you know what makes for a good acquisition. It’s usually a CEO or CFO that is placed in charge of an acquisition, but they have a full-time job already and often don’t even know where to begin. So, deals fall by the wayside… and growth stalls.

The Consequences of Delaying an Acquisition

Only when pushed to the brink in desperation do these middle market companies go through the whole acquisition process – or at least attempt to. They might eye a potential target only to find out a competitor grabbed them first, while they struggled to get their ducks in a row.

If that potential target had a capability they were looking to add, it gets even worse. They might lose the target and lose an existing client that expected the company to serve them with that capability.

Another consequence: the company was contemplating entering a new market and a competitor makes the acquisition and enters that market instead. Bad for business.

There is a solution. Synrgix offers a software platform that streamlines acquisitions by helping organize the process and schedule milestone events until the deal is done.

With a platform like this, companies eager to engage in M&A don’t have to hire an outside corporate development firm. They can do the work internally and spur deals that will allow them to add new capabilities, clients, geographic market, and more – all elements critical to growth. You can see the Synrgix platform yourself at: https://www.synrgix.com.

Another element that can help spur successful acquisitions is Representations and Warranty (R&W) insurance. With this coverage:

  • Negotiations are generally much quicker and less contentious.
  • Any risk from breaches of reps in the Purchase and Sale Agreement are transferred to a third party (the insurer).
  • Insurance companies do pay claims.
  • Less money is held in escrow and there is no chance of clawback.
  • Both Buyer and Seller feel peace of mind as a result.

There is potential risk in every deal, but R&W insurance mitigates it. And in the last couple of years, costs for this coverage have been coming down because more insurers are getting into the game.

Not to mention, deal sizes as low as $15 million are being covered by multiple insurers – that’s perfect for middle market companies looking to grow through M&A.

If you have a middle market company but haven’t been able to pull the trigger on a much-needed acquisition, I’d be happy to speak with you further about how you can avoid obstacles that are in your way.

You can contact me, Patrick Stroth, at pstroth@rubiconins.com.