Blog | Dr. John Binkley Generational Equity Chairman

A Memorable Year in M&A – My 2019 Retrospective

December 17, 2019 By John Binkley

The end of the year is always a great time for reflection. What did you achieve in that time? What would you have done differently? What lessons can you take into the next 12 months?

When I look back on 2019 (and the end of the decade in general), words that spring immediately to mind are change. Progress. Growth. In 2010 we were still picking up the pieces following the global financial crisis, with the global M&A industry beginning to show signs of recovery.

As we approach 2020, things have almost come full circle, as we are still enjoying one of the most robust and sustained M&A seller’s markets in the past several decades. For both middle market M&A as a whole, and for our team at Generational Equity, it has been a decade of development, one that I’m deeply proud of.

Focusing back in on 2019, I’d like to use this article as an opportunity to highlight what we achieved at Generational and what these experiences have meant to me personally, as well as my thoughts on another interesting year in M&A.

Different Places, Same Goal

One of the biggest changes we faced as a company in 2019 was moving home for the first time in many years.

In August, Generational Group officially moved its corporate headquarters to the exciting, dynamic CityLine area in Richardson, Texas. Making such a major shift was not a decision we took lightly, but the additional space and its forward-thinking technology ensured it would prove an ideal environment to support our plans for growth.

Among our other ambitions for our new HQ was to create an atmosphere that would allow for effective team-building and give our associates room to develop. As a firm, we have always placed a high priority in providing an education in M&A, and the tools our team members need to reach their potential. In our fast-paced industry and the responsibility to our clients, this aim is critical.

I can safely say that the transition has been very successful so far. While getting used to a new environment over the last few months offers plenty of challenges, we’ve met these together while maintaining the same duty of care to our clients. After all, it is their commitment to our techniques and approaches that has allowed us to continue our growth.

Alongside this significant development, Generational Group expanded in other directions as well. Our offices in Southern California relocated to again offer more room for growth and support for our clients on the West Coast. And later in the year, we were delighted to welcome two new regional offices in Canada, in Toronto and Vancouver respectively.

Finally, in my 2018 recap I discussed our excitement at welcoming the former Talis Advisors to the Generational Family. In April we officially announced their rebrand as Generational Wealth Advisors, dedicated to developing personalized strategies that help people grow, protect and transfer their wealth.

It has been wonderful to expand our offering to clients by bringing an award-winning team into the fold, and working with their specialists in wealth management.

New Milestones & Accomplishments

Another reason why 2019 will stay with me for a while is the fantastic achievements our team received throughout the year. While our sole focus at Generational Equity has always been supporting our clients on the journey to exiting their business, I believe it’s important to acknowledge and celebrate these accomplishments because:

They indicate that you’re working to an exceptional standard;
They represent recognition from your peers; and
They can be a powerful boost to team morale and motivation.

One milestone in particular stands out in my mind from the past 12 months. Generational Group surpassed $5 billion in wealth transferred to clients. With our work dedicated exclusively to transactions in the middle market, this landmark was an outstanding achievement, and a testament to our talented associates.

What means so much to me personally about that number is that every cent of it went some way to supporting our clients in departing their business. Helping them achieve their goals. Find their freedom. Secure their legacy. It is also a signal of the sustained strength of the seller’s market across this year, as this comes barely a year after we surpassed the $4 billion mark.

As well as this milestone, Generational Group received a great deal of recognition throughout 2019 from organizations I have the utmost respect for. At the 18^th annual M&A Advisor Awards that took place in November, our firm was honored with several awards, including:

Private Equity Deal of the Year $75MM to $100MM
M&A Deal of the Year $50MM-$75MM
Corporate/Strategic Deal of the Year $25MM to $50MM

Furthermore Phil Pizzurro, Managing Director Mergers & Acquisitions at Generational Capital Markets, was named an Emerging Leader by The M&A Advisor. It means a lot to me that we are giving the next generation of M&A leaders a platform to hone their skills and practice their trade at a high level.

Earlier in the year, Generational Group won 2 International M&A Awards:

Cross Border Deal Of The Year ($10MM To $25MM)
M&A Deal of the Year (Over $50MM To $100MM)

And, last but certainly not least, my son Ryan was honored by Hugh O’Brian Youth Leadership, an organization dedicated to the development of our next young leaders, with their highest accolade – the Albert Schweitzer Leadership Award. As both his colleague and his father, I am deeply proud of Ryan for this latest accomplishment.

Every achievement was a moment for our team to savor, and their tireless hard work continues to be recognized in 2020 and beyond.

M&A Activity in 2019

So that’s a glimpse into what 2019 was like at Generational Equity. But what has been happening in the wider world of M&A in the past 12 months?

As I noted earlier, the theme of the year for M&A in my eyes is one of durability. At the start of the year, a big question that many were looking to answer was how long will the seller’s market last after a stellar 2018. The fact that we’re still waiting to find out is a testament to how robust M&A activity has remained throughout 2019, and some predict this to remain the case for the foreseeable future.

This strength and stability of M&A activity across the year has been bolstered by several key trends. Private equity investment undoubtedly played a key role. It is anticipated by many that when the final figures are released in the new year that 2019 will be a record year for PE fundraising.

In a time of relatively tepid economic expansion in the U.S., investors are increasingly turning to private equity as it continues to generate great returns. This has been supported by a continued rise in add-on acquisitions, where PE firms focus on acquiring a range of smaller, middle market companies to reinforce the development of a larger platform company.

Another prevailing trend has been the continuation of cross-border M&A activity. in their 2019 report, Baker Tilly International discussed the rising value of cross-border transactions for business owners looking to maximize their exit plans.

They also look forward to the future, with 54% predicting a rise in M&A activity, predictions that middle market deals will account for 67% of deal volume in 2020, and 71% expecting to increase their cross-border activity. I anticipate we’ll see even more deals that transcend borders in the new year, despite heightened geopolitical risks.

2020 Vision

2019 provided a terrific end to the 2010s for myself and our team at Generational Equity. And while it has been great looking back on this year’s successes and developments, in the M&A industry we always need an eye to the future.

The sustained strength of this seller’s market should continue to inspire business owners considering their exit plans for the early stages of 2020. But while we can enjoy this for the time being, a hard truth about seller’s markets is that they don’t last forever.

My advice to anyone reading this who is considering the future for themselves and their company is to at least put an exit strategy in place – even make it a New Year’s Resolution if you must! Because even during the most robust seller’s market imaginable, if you are not prepared to exit, you won’t achieve an optimal offer when you do decide to leave.

So here’s to a new year and a new decade, and I hope that this one will be just as memorable, both for us at Generational Equity, and for you in your own endeavors.

The Advantages of the Add-On Acquisition Strategy

November 1, 2019 By John Binkley

In September 2019, Presidium Network Services, a client of our team at Generational Equity, was acquired by Baymark Partners. A successful transaction in the active business services sector – is there anything missing here?

Well, what makes this deal stand out is it being an example of an add-on acquisition. The goal of Baymark in purchasing Presidium was to support the development of their existing platform company, Slappey Communications.

Baymark identified the compatibility between both their platform and this new acquisition, and believed these similarities alongside the skills, services and location of Presidium would effectively accelerate the growth of Slappey, and subsequently secure them a greater return on investment.

This is just a first-hand example of where I’ve encountered add-on acquisitions, a topic I’ve covered on this blog in the past. However, since then, this M&A strategy has become even more prevalent among private equity firms worldwide. And, therefore, they represent a very viable option for business owners looking to exit for an optimal offer.

In this piece, I want to outline the purpose of add-on acquisitions and the ‘buy and build strategy’, assesses the popularity of these transactions, and offers some advice for sellers before pursuing this path.

Add-On Acquisitions and Buy-and-Build – An Overview

Divestopedia defines an add-on acquisition as a company added by a private equity firm to one of its established platform companies.

It is a technique many PE firms apply in order to spur the development of a company that they have interest in growing and increasing the value of, with a typical end-goal of selling it for a greater return on their investment or taking it public. The value of the add-on or ‘bolt-on’ company almost comes secondary to how it synergizes with the platform company.

Simply put, if a PE firm sees potential in a target to benefit a platform they’ve invested into, they’re more likely now to pursue the opportunity. And that can be incredibly lucrative to middle market business owners.

Take the approach of Audax Private Equity: In their 20-year history, they’ve invested over $5 billion into 126 platform companies and 774 add-ons. That breaks down to an astonishing 39 add-on acquisitions per year! This demonstrates that for many working in M&A, this is THE approach for them.

This technique is also often referred to as a ‘buy-and-build strategy’. As opposed to the financial engineering strategies I saw widely employed in the 1980s and 90s, this approach is designed to improve the operations of platform companies, while simultaneously growing the separate business units strategically.

As Bain & Company’s annual Global Private Equity Report illustrates:

“Buy-and-build can offer a clear path to value at a time when deal multiples are at record levels and GPs are under heavy pressure to find strategies that don’t rely on traditional tailwinds like falling interest rates and stable GDP growth.”

And this isn’t just gradually bolting on one or two companies to a platform over the course of several years – Bain defines buy-and-build as “building value by using a well-positioned platform company to make at least four sequential add-on acquisitions of smaller companies.”

The prevalence of the buy-and-build strategy offers an effective avenue for PE firms to accelerate the development of their platforms, and potentially make companies in the middle market much more attractive propositions.

So, why are they not more widely considered by those looking to exit their company?

In my experience, I’ve noted a lack of awareness among clients about this type of buyer. This isn’t surprising, as they tend to fly under the radar to deflect any publicity – you often don’t see these transactions front-and-center on the Wall Street Journal!

But, for owners of middle market businesses, this is now a solid path to achieving an optimal offer, provided you are working with experienced M&A professionals. Especially now, with add-on acquisitions arguably more prevalent than ever before.

The Rise in Add-On Acquisitions

In their 3Q 2019 US PE Breakdown Report, Pitchbook identified that add-on acquisitions now constitute 68% of all PE buyouts. So far in 2019, the number of reported add-ons is in excess of 1,700, with Pitchbook anticipating that this year will see a record number of these transactions completed.

Through my personal insight and Pitchbook’s findings, there appear to be three key factors in this growing predominance:

The amount of dry powder available to PE firms
Heightened focus on the buy-and-build model
The rising buyout multiples

Firstly, the level of dry powder accessible to private equity firms is at its highest since the lead-in to the global financial crisis, sitting at around $2.5 trillion. This capital can only be used to invest in companies and, with this extraordinary seller’s market still holding strong, there is a race to invest while the timing is right.

On top of this, as I’ve alluded to earlier, the buy-and-build strategy is being employed more and more often to help a platform company reach the next level. The more this is turned to, the better investors are becoming at spotting opportunities and applying it effectively.

Finally, US PE buyout multiples are at a very high level. This potential to develop an investment and make substantial returns is high right now, and may continue that way for the foreseeable future. And while that remains the case, add-on acquisitions will remain an attractive proposition, both to buyers and, as I will now discuss, sellers.

Why Sellers Should Consider Add-On Buyers

Now it’s been established what add-on acquisitions are and how prevalent they have become among prospective buyers, why do they present such a viable option for those considering their exit plans?

As I’ve covered throughout this piece so far, the advantage of an add-on acquisition strategy is it places smaller middle market companies in the crosshairs of significant investors looking to grow a platform.

Whether this is achieved by harnessing the add-ons skilled workforce, introducing new products and services, or expanding into previously unexplored markets, add-ons represent a strategic answer to the question “how can we grow X company?”

PE firms will devote a lot of time and resources to finding targets that fit what they’re looking for. And, consequently, they will be more willing to pay a premium for those in that bracket.

This should be encouraging middle market business owners contemplating their exit plans to throw their net further in a bid to find the right buyer. Reaching these firms looking for companies that synergize with their platform could prove a lucrative investment, as firms hope to make the turnaround on their initial investment as profitable as possible.

Furthermore, the art of the add-on acquisition for sellers is that in many cases, the PE firm will retain the management team under a newly capitalized format. So not only does that allow you as a business owner an opportunity to continue to build your legacy into your business with access to new resources and strategic support – it allows you to participate in a second bite of the apple when the larger entity is sold or taken public.

Sounds more intriguing now, doesn’t it? Fundamentally, your success in securing an optimal offer from a PE firm interested in add-on acquisitions will depend on two key factors:

How well your company aligns with the platform entity; and
How effectively you can locate and market to these buyers.

The first of these will very much depend on the buyer and what their objectives are. The second is the real challenge – as mentioned earlier, these buyers work under wraps and do not often publicize their dealings.

Therefore, it’s essential to work with an experienced, well-connected M&A advisory firm who can help put you in front of the firms that are searching for a company with your qualities, like Generational Equity. They will understand how to negotiate with these groups and highlight the intangible assets your company possesses that will encourage them to pay a premium for your company.

In Summary

To conclude, if you take anything away from this article, it’s to consider all available buyers when acting on your exit plans. The growth of add-on acquisitions is just one of numerous factors in how you can pursue an exit for maximum value.

But, without the expertise, connections and support of a highly-skilled M&A firm, you are likely to miss out on the potential these buyers offer your business, which could mean you leave money on the table when your exit is finalized.

If you’d like to learn more about add-on acquisitions and the value they can offer to your exit plans, Generational Equity’s insights provide useful knowledge and guidance across the entire M&A process.

Alternatively, if you would like to read more from me, check out my blog for further articles on M&A, business, personal development and more.

Knowing The Motivations Behind Your Exit Strategy

September 5, 2019 By John Binkley

The M&A process is only half the story when guiding a client to exit. This is one of the great lessons Dr. John Binkley’s decades at Generational Equity has taught him. What often goes underappreciated is the emotional aspect of an exit strategy.

What does Dr. Binkley mean by this? Well, when you dedicate years to nurturing your business, especially if you started from the ground up or it has been in your family for generations, making the decision to exit can be incredibly difficult.

The timing might be perfect, the offer could be ideal, the buyer the right fit… but you still find yourself not ready to let go.

Dr. Binkley’s son Ryan explored the emotional journey to selling a business in a recent article on LinkedIn, which covers this experience in greater depth. With many years working in the M&A industry behind them, they’re familiar with phrases from business owners such as:

“I’m just not ready to exit.”
“I will miss my employees.”
“I have no hobbies or interests outside of the business.”
“I am worried about the legacy I am leaving behind.”
“No one can run the business as well as I do.”
“What am I going to do when I leave?”

The final statement has been highlighted as it leads to the subject of this piece: knowing your motivation behind your exit strategy.

Understanding Your Incentive to Exit Your Business

Most people exit their business with a motivation in mind, whether it’s an offer too good to refuse, they’ve taken their company as far as it will go, or they’re ready to retire and take back time for themselves.

However, that motivation to exit can easily find itself buried under the emotions that can hinder any sale – the doubt, the grief, the fear. In Dr. Binkley’s experience, losing sight of this reasoning can make it more likely for sales to fall apart at the 11^th hour and you potentially walk away from an optimal deal.

What is the consequence of this? Not only do you lose out on the time and resources you’ve devoted to valuing your company, sourcing a buyer and negotiating this deal, but it can also lead to greater issues later on, including:

A host of confidentiality issues between you and the other party, which may lead to legal difficulties
Issues forming between your loved ones, employees and partners over the uncertainty surrounding your business
You develop a negative reputation among potential buyers, who will be more apprehensive about entering negotiations with you when you next decide to exit, likely hurting the value you receive

Furthermore, holding off on exiting because you are unclear regarding your personal motivations means you may one day find yourself forced to sell. Dr. Binkley often says there are two types of business owners:

Those that PLAN to sell
Those that HAVE to sell

It is far more beneficial to find yourself in the former group than the latter. So it is essential to make sure you’re mentally ready to exit early in your journey to keep you on course for a well-planned, successful outcome.

What is Your Reason to Sell?

As alluded to earlier, there are a host of reasons why you might be motivated to exit your business. But how do you find yours? Obviously, the answer to that can only come from you and your inner circle, but addressing this should take time and plenty of thought.

A decision of this magnitude should not be taken lightly, especially if you hope to achieve the optimal exit strategy. Rash decisions are the ones most likely to be reconsidered down the road, so it should take a lot of rationalizing and deliberation both internally and with those closest to you, be it your family, other shareholders or trusted advisors.

Indeed, talking to an experienced M&A advisor can be a huge help in reinforcing your motivations to exit. At Generational Equity, Dr. John Binkley places a strong emphasis on dealmakers getting to know their clients closely, understanding their background, needs and ambitions before proceeding any further in the process.

This focus has helped many of Generational’s clients understand their incentive to exit their business in pursuit of the maximum value. No two clients’ goals are exactly the same, which is why it’s crucial to work with an M&A professional that treats you as an individual, rather than taking a cookie-cutter, one-size-fits-all approach.

If finding and sticking to your motivations to exit are proving difficult, Dr. Binkley would like to share some of these clients’ stories, helping you understand:

How diverse reasons for exiting a business can be; and
How working with a professional keeps those motivations top of the agenda throughout the journey to exit.

Security for the Future – Mike Aman

*“I would have been doing my wife and my children a disservice had I not had a plan in place for when the time came for me to sell the business.”*

We can’t predict the future. For Mike Aman, it took a wake-up call to fully appreciate this when a close friend suffered an unexpected stroke. Mike used this as motivation to talk to his family and reach the conclusion that selling his business in order to secure their financial future, so they were ready for any eventuality.

Freedom to Explore – Bobby & Stacy Evans

*“My wife and I love to travel, and we’ve got the time available to us now to be able to do more travelling than we have in the past.”*

Being tied to their company restricted the time Bobby and Stacy Evans had to travel and experience different cultures. This vision was a big motivator for them in their exit strategy, giving them the time, resources and freedom to spread their wings and journey around the world.

Explore Your Passions – Tommy Barker

*“I learned in business that time is money. I’ve changed this in the time since I’ve sold my company – right now time is more valuable than money.”*

When you’re a serious business owner, your other passions often take a backseat. When the time was right, Tommy Barker decided he was ready to dedicate more time to his love of restoring classic muscle cars. This motivation carried him through the process, keeping him on the road to his optimal exit.

Partner for Growth – Debbie Ritchey

*“You’ve really got to ask yourself do I want to just get out, or do I want somebody that has the capital that I don’t to grow this thing?”*

Sometimes exiting the business outright isn’t the motivation, but instead selling part of it to a partner to help it continue to grow. That was the case for Debbie Ritchey, who sought out an investor to support her company’s development, with the goal of reaching its full potential.

Enjoy Retirement – Michael & Rebecca Baker

*“We wanted to get out while we could still walk and still enjoy, have time to play with the kids and not have to worry about things*.”

Often, the goal of an exit strategy is to reap the rewards following years of hard work and perseverance. Having taken their company as far as they could, Michael and Rebecca Baker’s motivation changed to selling for the maximum value, giving them the freedom to enjoy life on their terms.

Finding Your Motivation to Exit

Dr. Binkley hopes this dive into the importance of keeping your motivations for exiting in the forefront of your mind has proved useful, as well as the stories of real business owners’ exit journeys. The psychological side of selling a business is in many ways just as important as the steps to achieving a deal, so it is important to take this into consideration.

Again, how your M&A advisor approaches the emotional aspect of the exit planning process should be a key consideration in who you work with. Make sure you choose an individual or team that prioritizes your goals as much as you do, helping these stay fresh in your thoughts during the difficult moments along the way to your exit.

You can discover more about both the psychological and practical aspects of exiting a business in many of Generational Equity’s in-depth insights. Alternatively, explore Dr. John Binkley’s blog for more articles on M&A, business, ministry, and more.

Ready for Tomorrow – 5 Ways to Future-Proof Your Business

June 11, 2019 By John Binkley

For Dr. John Binkley and the team at Generational Equity, preparing clients for the future is at the heart of what they do every day.

Whether its introducing techniques to enhance a company’s value, minimizing risk in the eyes of potential buyers, or helping an owner create a comprehensive exit strategy geared to achieving the maximum value when they depart, Generational’s M&A professionals are dedicated to giving clients the future they deserve.

Unfortunately, the future is now arriving faster than ever. Factors such as increased globalization, the rapid development of technology and an increasingly competitive business landscape means that the world we see today could look completely different tomorrow. And, for business owners who are too focused on the present day, there is a real risk that they’re missing out on a brighter future.

Consider this for a moment: in 1965 the average tenure of a company on the S&P 500 was 33 years. By 1990, this had dropped to 20 years and, if forecasts are correct, by 2026 it will be down to 14 years.

For Dr. Binkley, this significant shrink in company lifespan illustrates how important it is for business owners to place a priority on future-proofing their business and preparing for life beyond it. This is not something that can be placed on the back-burner while you worry about day-to-day operations – without a plan for tomorrow, your business might not have one.

Future-proofing your company not only helps to ensure its survival in an increasingly competitive business landscape, but it also plays a big role in convincing potential buyers and investors that your organization will be around for years to come. If your company isn’t set up to embrace the future, your chances of securing an optimal sale diminish greatly.

Here, Dr. John Binkley breaks down five ways you can help secure the future of your business in pursuit of your goals, from establishing your ambitions early to securing its legacy with a thorough succession plan.

1 – Establish Your End Game

First and foremost, ask yourself an important question:

“What does success look like to me?”

This is something Dr. Binkley recommends you ask whether you’re just starting out, or have been at the helm of your company for decades. Knowing your ambition for your company and for life after business is vital when deciding what direction to take both now and in the future.

Maybe it’s to be the top player in your industry? Perhaps you want to make a difference in the world? Or you could simply want to earn enough to retire comfortably and look after your loved ones?

Whatever your goal, write it down and reflect on it regularly. Your aspirations could change over time, so it’s essential to keep this up-to-date. Keeping your aims fresh adds clarity to your future and ensures the decisions you make to progress and develop your company are proactive, not reactive. This means you’re thinking clearly about how to tackle tomorrow in the best way in order to achieve your ambitions.

2 – Invest in Your Employees

When we hire new staff, we tend to do so to address a present need in the business. However, those who are focused on future-proofing their company will concern themselves with what their business will need tomorrow.

To keep up with changing demands in your industry and among your customer base, it’s crucial to invest in your employees’ development with training opportunities. This helps your business grow into new markets, enhances its repertoire and makes it a much more valuable proposition to buyers when the time comes to exit.

In addition, this investment shows your staff that you care about their future, as well as the future of your firm. This motivates them to work harder for your cause and helps develop a sense of unity and shared purpose. Let’s face it – without a happy, fulfilled workforce you can rely on, your business won’t have much of a future to look forward to.

If you’d like to learn more about ways to encourage employees to support the future of your organization, Dr. Binkley recommends reading the “5 Ways to Put Your People First” insight on Generational Equity’s website.

3 – Keep Up with Technology

A quote Dr. John Binkley likes to refer to in this situation is by the Danish physicist Niels Bohr:

“Technology has advanced more in the last thirty years than in the previous two thousand. The exponential increase in advancement will only continue.”

Remember that Bohr passed away in 1962. Technology has since developed at an even faster pace, to the point the world is almost unrecognizable to that of 1962. Keeping up with the latest technology is crucial to a business staying relevant and efficient, so it doesn’t fall behind competitors.

Of course, this investment in developing technology in-house can be extremely costly and time-consuming for companies. As a result, Dr. Binkley has noted a trend towards M&A activity with the goal of incorporating new technology and expertise, rather than investing in R&D, particularly as part of cross-sector M&A activity.

This helps companies address the need to keep up with technology demands in an effective way, as well as increase the appeal and value of middle market firms that have been more agile in adopting this technology.

4 – Avoid Dependencies

Next, it is crucial that a company looking towards the future embraces diversity and doesn’t place all its eggs in one basket.

Dr. Binkley and Generational Equity’s staff have previously spoken about how any business that is too dependent on a single customer, supplier or partner waves a massive red flag to prospective buyers. This is because it indicates that the company’s success is reliant on not only their own hard work and initiative, but maintaining a consistent relationship with a third-party.

As a rule of thumb, if a potential buyer would be worried about your organization’s future, it’s a good sign that you should be too. To avoid this, it’s important to devote energy to diversifying your customer and supplier bases, as well as your offering over time.

This enhances your company’s chances of survival and means when the time comes to secure an exit, a buyer will feel more confident that if a revenue stream is lost post-transaction, your business will continue to grow.

5 – Start Your Succession Plan

Finally – and arguably most crucially of all – create your succession plan as early as possible. Last year, an article in USA Today revealed that 58% of small business owners didn’t have a written succession plan, even though 60% of the 15 million privately held businesses in the United States are owned by people born before 1964.

This is a staggering statistic. Having a succession plan in place is vital to your company’s long-term viability, as well as the legacy you leave behind when you depart. Far too many fall into the assumption that the business will be taken over by a family member, or they’ll be bought out by one of their key employees. Both options carry substantial risks:

What if the family member you’ve earmarked is not passionate about your industry, or has ambitions outside of your company?
Are you sure your offspring/employees have the characteristics required to be an effective owner?
Will other employees resent the person you handpick to take over the reins, especially if they’re part of your family?
How will your key employees finance the acquisition, and will this be enough to support your life after business?

Considering these questions is not something you can afford to leave to the last minute. Plus, in Dr. Binkley’s experience as Chairman of Generational Equity, the most lucrative and trustworthy end goal for a succession plan is to negotiate with interested buyers.

By building your succession plan around your ideal buyer, you establish the key characteristics required to drive your company forward after you depart, greatly increasing your chances of locating a buyer that is willing to present an optimal offer.

The Future Is Now

Dr. Binkley hopes that this has demonstrated the importance of future-proofing your business in today’s landscape, while giving you an understanding of some of the core ways you can accomplish this.

Given the day-to-day responsibilities of owning and managing a company, it’s all too easy to let the demands of today overtake your needs for tomorrow.

Devoting time to plan and strategize for the future of your business not only helps to preserve it for years to come and craft the legacy you wish to leave behind, but also makes your company a more attractive proposition to buyers when you are ready to exit.

If you’d like to learn more about steps to future-proof your business or the process of building a buyer-ready business, Generational Equity’s regularly-updated, in-depth M&A insights provide a wealth of information on preparing for the future you’ve always hoped for.

In addition, Dr. John Binkley’s blog has several articles across the M&A spectrum, as well as other inspiring and motivational pieces.

Cross-Sector M&A and the Blurring Business Landscape

April 30, 2019 By John Binkley

“We are seeing M&A become the fastest route to reinvention in today’s digital economy.” – How U.S. M&A will transform businesses in a changing world, Ernst & Young

As Dr. John Binkley and the team at Generational Equity have noted on numerous occasions, we are enjoying one of the most robust seller’s markets in decades. U.S. M&A in 2018 ended on a high note, with deal value topping $2 trillion for the fourth consecutive year across North America, marking a 6.9% increase on 2017.

This trend shows no sign of slowing into 2019 either. Insight from Merrill Corporation on Mergermarket data demonstrates that the pace of deal making has actually picked up in the early months of this year, with 504 deals valued at $257.5 billion, eclipsing 2018’s $223.2 billion. This indicates to Dr. Binkley that the seller’s market is not over yet and buyers are doubling down on their efforts to secure fitting acquisitions.

But, what many business owners often don’t recognize is that the buyer who stands to offer the best deal might not necessarily be in the same industry as they are. Within the last few years there’s been an increase in attention to cross-sector deals, as businesses use M&A to expand in new markets, incorporate technology and grow their capabilities.

The rise of cross-industry M&A

Dr. John Binkley alluded to the increasing focus on cross-industry acquisitions in his article last year reviewing 2018’s M&A activity. This trend is expected by many to maintain in 2019, driven in large part by the desire of companies to integrate new technology in this rapidly digitalized world.

This point is explored in Ernst & Young’s 2019 sector outlook for M&A. They note how buyers, particularly private equity firms, are acquiring technology companies as bolt-ons for their existing platforms to improve their capabilities and remain competitive in an ever-shifting business landscape.

Rather than devote the substantial time, manpower and resources into developing their own technology in-house, it is often more time-efficient and cost-effective for buyers to acquire a company that already has the technology and specialist expertise to enhance their own offering.

In their full-year 2018 update of global M&A, PwC reinforces EY’s assertions that cross-sector deals were a pivotal part of that year’s activity, and will continue to be so this year. They revealed that over a third of U.S. corporate deals last year blurred sector lines, with this type of acquisition particularly prevalent among buyers in the media, telecom, pharmaceutical and life sciences industries.

Investment into technology companies is especially prevalent, as companies in traditionally non-tech sectors are now employing these to solve internal gaps, enhance their offerings to customers and remain competitive in a rapidly tech-reliant world.

451 Research revealed that acquirers outside the technology sphere have spent over $40 billion on tech companies in each of the last three years, a sign of the recent shift towards cross-sector M&A. And technology companies are also not shy of extending their reach into different industries, as demonstrated by Intel’s acquisition of Mobileye in an effort to become prevalent in the assisted and connected car industry.

However, the propensity to cross industry lines certainly isn’t exclusive to these sectors. KPMG conducted a thorough examination last year on the surge of cross-sector M&A in acquiring financial services companies. Their research clearly demonstrated the breadth of interest across industries in converging into this already broad sector:

Estimated share of sectors investing in financial services

Construction & Real Estate – 16%
Technology – 14.8%
Industrial – 13.6%
Energy – 11.8%
Consumer Goods/Retail – 10.1%
Transportation – 8.9%
Leisure – 5.9%
Media/Telecom – 5.3%
Healthcare – 4.7%
Others – 8.9%

For Dr. Binkley, this shows that the cross-sector M&A trend is not limited to one area or a passing fad in deal making – it is a signal of a more fluid business landscape. Companies that are seeking quick, meaningful growth are looking at opportunities to expand their capabilities and market share by looking beyond the bounds of their industry.

Don’t place industry limits on your exit strategy

A common thread connecting business owners that Dr. John Binkley and dealmakers at Generational Equity have noted over the years is the assumption that they will eventually sell their company to a competitor, or at least someone in the same industry. While that is certainly an option, by assuming this, you could place unnecessary limits on your options when pursuing an exit for optimal value.

That’s the difference between choosing an M&A firm that specializes in multiple sectors like Generational over boutique brokers. While boutique firms may claim to be able to help you find the optimal deal within your industry, that may not necessarily be the same as the optimal deal overall. It pays to explore all avenues and expand your horizons beyond the sector you operate in, as they could provide a more lucrative, synergistic and inviting proposition for the future of your company.

In 2017 Bloomberg supplied a list of cross-sector M&A deals that demonstrated how U.S. companies are looking outside their wheelhouse for new opportunities:

Source: Bloomberg

Each was a strategic decision to look towards an industry that is complementary to the acquiring company’s, but you must assume that the dealmakers involved took the time to scour the market and employed their cross-industry knowledge to find the optimal buyer for their clients.

Some of you may say “Why would a technology company be interested in my brick and mortar business?” But that’s not thinking like a buyer. Buyers look for intangible assets that don’t appear on the balance sheet, or ways your company can enhance their existing proposition, creating the proverbial 2 + 2 = 8 scenario.

In the end, your competitor may prove to be your optimal buyer. However, until you’ve explored the possibilities, you could be left wondering whether you left money on the table by sticking rigidly to the ever-reducing boundaries between industries.

The business landscape is changing, which Dr. Binkley credits in large part to the transformative possibilities presented by M&A activity in allowing firms to acquire technology, skilled personnel and new methodologies to increase their capabilities and remain competitive. The once-distinct divides between industries don’t exist anymore, and with that comes a whole new world of opportunity for exiting business owners to secure the maximum value.

Generational Equity’s diverse database of tens of thousands of business buyers allows the firm to present clients with in-depth expertise across a range of sectors, which has led to numerous examples of cross-sector pollination. By establishing a broad yet specialist approach to M&A, Dr. Binkley believes Generational presents all available options to middle market business owners preparing to exit.

Hopefully this has offered a greater insight into the prevalence of cross-sector M&A right now, the opportunities this offers for both professional buyers and those looking to exit, and the reasons why this environment makes choosing a firm that gives you options preferable when it comes to departing your business.

If you’d like to learn more about the current M&A landscape, cross-sector trends and the process of exiting a company for an optimal value, Generational Equity’s regularly updated insight page is a great resource for business owners thinking about their future.

In addition, Dr. John Binkley’s blog has several articles on developing your exit strategy, as well as other inspiring and motivational pieces.

M&A Forecast: Is 2019 the Year to Execute Your Exit Strategy?

February 18, 2019 By John Binkley

Less than two months into 2019, and it’s apparent that the seller’s market in M&A is still strong.

For Dr. John Binkley and his team at Generational Equity, this isn’t surprising considering the strength of the economy right now and the buoyant attitude of buyers and sellers towards deal making in recent years. Cutting the U.S. Corporate Tax Rate to 21% and steady GDP growth (3.5% in Q3 2018) are contributing to this exceptional environment for M&A.

However, the length and robustness of this seller’s market has been something of a blessing, not just for Generational’s team and clients, but across North America.

Indeed, Merrill Corporation’s year-end review of 2018 (based on data compiled by Mergermarket) demonstrated that the value and volume of M&A deals last year was at a similar record-level as the past five years. This was elevated by another strong year for deals involving private equity firms.

Alongside this, Dr. Binkley is happy to report that Generational Equity fit this forecast of significant M&A activity seamlessly last year.

It was another record-breaking year for Generational, with an 8% increase in transactions closed to 2017’s prior record, as well as an 11% rise in wealth transferred to the firm’s clients. The firm also ranked first in transactions valued up to $25 million in Thomson Reuters’ 2018 North American M&A Rankings.

M&A Seller’s Market Still Going Strong in 2019

2019 M&A Market John Binkley Generational Equity

If anyone feared 2019 would see the strong M&A landscape come to a shuddering halt, that hasn’t proved accurate. In fact, if early indications remain consistent, this could be an even stronger year than 2018.

Dr. John Binkley was pleased to see Bloomberg’s report that $275 billion of M&A activity had been completed globally this past January alone. That is the best start to a year since 2000, and $187 billion of this total was generated off the back of North American deals.

This is a clear indication that this seller’s market in M&A is forecasting no signs of slowing in the near future, despite growing rumblings that an economic downturn could be on the horizon. And, among this already positive environment, another excellent aspect of this activity is that it’s impacting all financial tiers, including the middle market.

Citizen Commercial Banking’s Annual M&A Outlook, which surveys 600 middle market business leaders nationwide, has demonstrated that M&A activity is high on their agenda for 2019. 62% of potential sellers are either presently working on a deal or are open to negotiating one this year, with 71% of potential buyers feeling the same way.

In addition, 80% of these buyers are either extremely or modestly confident they will conclude a transaction in the next 12 months. For Dr. John Binkley, having a clear majority of business leaders on the buyer’s and seller’s side is a strong indicator that the market is alive and well.

Furthermore, readers of Middle Market Review have confidently forecast that M&A activity in 2019 will remain strong, citing many positive signals including:

The booming economic outlook
The growing number of baby boomers looking to retire and sell their business
The expansion of GDP
The lower barrier to growth for businesses under the Trump Administration

However, again the threat of a potential recession is playing on the minds of many middle market business owners. Around half those surveyed by Citizen Commercial Banking expecting this downturn to take place in the next two years. In the same way that economic growth is usually a factor in a rise in M&A activity, a recession usually leads to a decline as a period of economic uncertainty takes hold.

This anticipation and the current positive forecast for M&A means one thing – 2019 is the ideal time for those contemplating an exit to act now for the best chance of securing an optimal offer.

2019 in the Middle Market: Executing Your Exit Strategy

“For sellers, a more pronounced slowdown presents a conundrum. Act now or they could be faced with the reality of putting their exit strategies on hold until market conditions rebound, and hoping that company performance holds up in the meantime.” – Ralph Della Ratta, Citizens Capital Markets

While seller’s markets in M&A are a great time for business owners looking to sell, pushing valuations up and encouraging buyers to get active, it is only great if you are prepared to exit. Otherwise, as Dr. John Binkley and others at Generational Equity have witnessed numerous times, business owners could miss out on maximizing the value of their company at exit.

Even this seller’s market, which has been one of the most enduring and lucrative in decades, will come to an end at some point. While it is still possible to achieve an optimal offer in a buyer’s market by presenting the right proposition, business sellers who miss this boat could easily find themselves exiting for a cut-priced sum.

As previously indicated, there are many factors that are converging right now in the M&A market that are making now a great time to sell a business. Companies’ liquidity has opened the door for more deal making and investment, and tax reform has had a profoundly positive impact.

However, for Dr. Binkley, two pivotal influences right now should be motivating those considering an exit to get a move on their strategies: U.S. demographics and private equity potential.

According to the AARP, 10,000 baby boomers are turning 65 every single day, a rate expected to last into the 2030s. Eventually, those who own a business at this age will depart, one way or another.

For dealmakers and buyers, this is great news – more businesses on the market means more work. But, for sellers, more businesses entering the market in one fell swoop means more competition. What makes your business more appealing than John Doe’s across town?

Every year the market will become more and more crowded. So, it pays to put exit plans into action now when the economy is vibrant and others are slow on the draw – this quick thinking could mean a significant amount to the value of your exit.

Then, there’s the continued rise of private equity investment. Deloitte’s 2019 M&A Trends report revealed that nearly 90 percent of private equity leaders forecast a rise in M&A deal flow this year, with PE firms sitting on a record $1.14 trillion in dry powder.

Plus, PitchBook reported that the number of private equity-backed companies in North America and Europe is on the rise, closing the gap to the number of public companies (10,440 vs 14,393). With the dry powder capital waiting to be invested in businesses that demonstrate real growth potential, this presents a real opportunity to business owners with a prepared exit strategy that outlines what makes their proposition so strong.

Make 2019 the Year to Exit Your Company

If you are considering exiting your company, Dr. John Binkley strongly recommends making 2019 the year to put your plan into action. When this incredible seller’s market ends, there is no way to accurately determine when one will return. If you are serious about achieving the maximum value when you depart your business, providing the best quality of life for you and your loved ones post-sale, now is the time to act.

Don’t know where to start? Dr. Binkley and his experienced team at Generational Equity can help guide you to a successful, fulfilling exit. With more completed deals in the middle market than any other M&A advisory firm in the past decade, Generational’s expertise has supported entrepreneurs in all industries secure the optimal deal.

To build your knowledge of the M&A process, check out Generational Equity’s collection of insights, which go into greater detail on the market right now and offer advice on what steps to take to pursue an effective transaction.

In addition, Dr. John Binkley’s blog has several other works dedicated to business owners looking to exit, as well as other inspiring and motivational pieces.

Dr. Binkley hopes you found this enjoyable and it serves you in good stead as you make the most of 2019.