Blog | Dr. John Binkley Generational Equity Chairman

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.

A Year for Growth – 2018 at Generational Equity

December 10, 2018 By John Binkley

2018 is coming to a close, and with it the end of a memorable year for Generational Equity and the M&A landscape in general.

Dr. John Binkley has been very proud of the growth Generational has enjoyed in the last 12 months, supported by the very active M&A landscape and the efforts of its team and clients. In many ways it will go down as a landmark year for the firm, both in terms of what was achieved during 2018 and the groundwork it laid for next year and beyond.

Here, Dr. Binkley would like to share some of the highlights of 2018 at Generational Equity, and his hopes for the future of the firm.

2018 M&A Activity

Before Dr. John Binkley delves into the developments Generational Equity made in 2018, he felt it was fitting to take a glimpse at the wider M&A landscape.

The excellent seller’s market that has been a feature of the last few years continued throughout 2018, resulting in record-high levels of M&A market activity. Data from the Merrill Data Corporation revealed that deal value in the United States and Canada is up over 27% compared to 2017.

Furthermore, Mergermarket revealed that between Q1 and Q3 of 2018, U.S. M&A reached its second-highest total in terms of both deal value and number of deals – $1.1 trillion and 4,100 transactions respectively. This exceptional, consistent market is due to a variety of factors:

Healthy economies both regionally and nationally
Elevated buyer interest, especially among private equity firms
High confidence among business owners at all levels about opportunities for growth and M&A activity
Tax reform in late 2017 that reduced the corporate tax rate and spurred repatriation of funds held overseas
Low interest rates that have remained stable all year

The positivity of U.S. and global M&A is reflected in Generational Equity’s activity across the year. On deal closings compared to last year, the firm is up 12% as of now. This is remarkable as 2017 was our previous record year, which 2018 is set to beat considerably.

Generational Growth

As the title suggests, the theme of 2018 at Generational Equity was growth. For Dr. John Binkley, who has spearheaded the firm’s development from the start, it has been heartwarming to see the Generational Group’s unwavering expansion under the direction of his son, Ryan.

Generational’s expansion took several significant steps forward in 2018, including the introduction of four new office locations. The first, in April, was one close to home, as the firm opened an office in Austin, Texas, just a few hours’ drive from their headquarters in Dallas.

This was followed by two expansions in the dynamic Midwest market, with new offices in Columbus and Cleveland, Ohio. These locations were selected for their strong foundations, attractive business targets and access to a wider network of clients and buyers, that Dr. Binkley believes will be key to future growth.

Finally, Generational Equity opened a fourth new office in Manhattan, New York. This not only represented a big market but will also better serve the growing international demand for the firm’s services.

“Our company continues to implement its strategic plan to open more offices in the key target markets across North America in an ongoing effort to better serve middle market businesses.” – Brenen Hofstadter

The New York office also highlighted another aspect of Generational’s growth in 2018 – quality personnel. While Generational Equity has always featured some of the most experienced, dedicated professionals in middle market M&A, it always embraces fresh talent.

This was the case with David Fergusson, who was brought on as Senior Managing Director and Group Leader, and now heads up our New York office. Fergusson has over 30 years’ business and M&A experience, and is the former Co-CEO and President of The M&A Advisor.

David was one of several new additions to the Generational family. Highly experienced business leader and senior level executive John Hyman joined Generational Equity as Executive Managing Director, while Samantha Cooper O’Kane joined as Associate General Counsel, offering effective legal expertise.

Last but by no means least, Generational Equity welcomed a new team that has expanded the range of services it can offer to its current and future clients. By acquiring a majority stake in Talis Advisors, Generational added an award-winning wealth management firm to the group, meaning they can help clients preserve their wealth, as well as unlock it through a systematic exit strategy.

M&A Milestones

Alongside this great growth throughout Generational Equity, Dr. John Binkley was very pleased with the major milestones that the firm passed in the last twelve months.

The most notable milestone was surpassing $4 billion in wealth transferred to its clients across the entire Generational Group. This is an unprecedented level of activity for firms specializing in the lower middle market, and a great testament to the skill, experience and commitment of its M&A professionals.

“We strive to make a genuine difference in the lives of our clients, and this achievement is a tangible demonstration of that. It’s very gratifying to play a role in helping our clients attain their financial goals and help create the legacy they have worked so hard to build.” – Ryan Binkley

Generational Equity also closed its 700^th transaction back in May, another standout achievement in their industry. But, above this was the fact that this represented 700 business owners the firm had helped secure their financial legacy and achieve a successful exit.

An Award-Winning Year

Generational’s primary focus is going to any lengths for their clients, so it’s always an honor when that hard work is recognized. Dr. John Binkley appreciates that the methods and values he introduced and helped refine over time are respected by his peers.

At The M&A Advisor’s 17^th Annual M&A Awards in November, Generational Group was once again named Investment Banking Firm of the Year, an award they also received in 2017 and 2016. These back-to-back-to-back victories highlight the consistency the firm has shown in recent years, and how resolute the team is in its dedication to its clients.

Generational Capital Markets also walked away with the Corporate/Strategic Deal of the Year ($10mm-$25mm) for its support of its client, Ammex Plastics, in a sale to Echo Engineering and Production Supplies.

Earlier in the year, Dr. Binkley was pleased to see several of Generational Equity’s staff recognized as Emerging Leaders by The M&A Advisor – Musa Jagne, Ryan Johnson and Luan Ly. This was a result of the thorough training they received at Generational alongside their own ability and determination.

Generational Equity Giving Back

2018 was a great year for Generational Equity supporting its own development, but also it was a big year for supporting others. Dr. John Binkley is devoted to supporting good causes and the community that has allowed his firm and family thrive. So, he was especially proud of the way Generational supported both throughout the year.

At the tail-end of 2017, Generational was title sponsor of the Dallas Jingle Bell Run (which Dr. Binkley is pleased to share will be the case in 2018 as well). This fantastic family-friendly and dog-friendly event encourages the community to get moving and embrace the festive spirit by wearing their favorite holiday attire.

The Jingle Bell Run also raises money for two great causes – The Trinity Strand Trail and The Mavs Foundation – organizations that go a long way to improving lives and our environment. In February, Generational was delighted to deliver a check for $82,416 to these foundations to continue the amazing work they do. The team is looking forward to repeating this next year.

Generational also raised money for causes close to Dr. Binkley’s heart through one of his favorite pastimes – golf. Generational Group sponsored two charity golf tournaments in 2018. The first in May was in support of Here’s Life Africa, a nonprofit interdenominational mission ministry committed to spreading God’s Words and support villagers in the poorest countries in the world.

Later in the year, Generational was also title sponsor for The Salute Golf Tournament, an annual event to raise funds for post 9/11 vets who need help not provided to them by the Veterans Association. This was another big success and it was a privilege to spend time in the company of brave men and women who served our country.

What does 2019 hold in store for Generational Equity?

2018 has been a memorable year for Dr. John Binkley and the whole team at Generational Equity, much of it only possible due to the unwavering support of the firm’s clients and team members. This has been the foundation for much success in recent years.

As for Dr. Binkley’s hopes for 2019, he is looking forward to the continuation of the expansion that accelerated this year, as Generational settles into new markets and extends its reach to business owners across North America and worldwide.

Plus, with forecasts suggesting that the current M&A seller’s market will extend into 2019, Dr. Binkley is optimistic about the near future of M&A and the prospects for owners seeking to exit for the optimal value. He hopes that, through Generational’s eye-opening conferences and expert guidance, the firm continues to guide more people to fulfilling exits.

Hopefully you have enjoyed this trip down memory lane. If you’d like to learn more about these events, Generational Equity’s collection of press releases goes into greater detail on each of these milestones.

And, for a greater appreciation of how M&A has evolved in 2018 and how to capitalize on the current seller’s market, check out more of Dr. John Binkley’s blog posts. He hopes 2019 proves as prosperous and memorable for you as 2018 did for him.

Increase in PE-Backed Companies Seeking Add-ons Could Maximize Your Exit

September 20, 2018 By John Binkley

With his extensive experience in the industry, Dr. John Binkley has seen trends and movements come and go within the U.S. financial landscape. One current phenomenon that he has observed with interest is the popularity of additive deal making, or “add-on” acquisitions, among middle market businesses by private equity firms.

While Dr. John Binkley and other professionals at Generational Equity have observed and commented upon the increase of add-on acquisitions in recent articles on the subject, the latest evidence shows that this trend has escalated significantly.

Add-ons Becoming Another Norm

Newly emerging figures are suggesting that additive deal making on behalf of private equity funds is no longer simply a significant contributor to the volume of U.S. middle market M&A activity, but that add-ons have become the primary means by which mid-size American businesses are now acquired.

According to PitchBook, compared to 15 years ago when less than 20% of buyouts globally were add-ons, so far this year they account for more than half, with this figure breaching two-thirds in the U.S. So, for a U.S. middle market business owner exiting their company this year, there is a significant chance the buyer will be a private equity firm aiming to bolt on the business to an already held platform company.

This clearly has huge implications for business owners picturing how they will one day exit their company. Given this shift in how and why middle market firms are acquired in the U.S., sellers will have to plan differently and look beyond their competitors as potential buyers.

For business owners with a limited understanding of the behavior of private equity funds, and the increasing complexity of exit transactions where private equity is involved, seeking professional advice on exit planning is now more essential than it has ever been.

The Traditional Model

When we consider M&A activity, we typically envision the situation where existing businesses expand their own operations on the ground by buying up competitors and associated businesses. The appeal of acquisitions to an operating business are quite clear:

Acqui-hiring: Recruitment can be costly and time consuming for businesses. By acquiring an associated business, the buyer effectively hires that company’s core of trained employees that are more prepared to hit the ground running.
Geographical expansion: Acquiring a business with a strong record in a target location can be a great way for a company to expand its reach while minimizing risk.
Economies of scale: Operating on a larger scale can deliver savings through the consolidation of job roles, and bulk buying of raw materials, wholesale items or goods not for resale and other such economies.
Diversification: By acquiring a business with a different focus from the buyer’s own, the buyer can introduce new functions onto their existing holdings immediately.
Supply chain: Acquiring a business that supplies yours, or even acquiring one that your business supplies, can cut costs or increase margins for the resulting entity.
Consolidation and alleviating risk: A consolidated business may have more capacity to take on larger contracts with larger partners. Such a business might also be offered some measure of stability and protection should they lose a key business partner.

In other words, good old-fashioned growth. You buy another business similar to your own to expand your operations, or an associated or disparate business to acquire new functions or capabilities. That much is clear. However, the market share represented by this traditional model is dwindling.

Same Game, New Players

This is despite the clear benefits of the approach and the fact that M&A activity is thriving. In fact, according to Deloitte:

“[A]bout 68 percent of executives at U.S. headquartered corporations and 76 percent of leaders at domestic based private equity firms say deal flow will increase in the next 12 months.”

However, rather than businesses buying other businesses, Dr. John Binkley has seen the M&A landscape shift with the rise of acquisitions through private equity funding. It may come as a surprise to many that private equity investment is now rivalling this traditional model in driving M&A. So, what has changed in terms of market benefits that a smaller percentage of acquisitions now stem from the corporate sector?

In an important sense, nothing has changed in the way that businesses benefit from consolidation. All the above benefits to expansion certainly still apply. These deals are still happening – and at record volumes – for the same reasons and achieving the same beneficial outcomes as they always have. All that has changed is the players involved. The difference lies in who is spotting the opportunities and building the deals.

What has occurred in the last decade is that the success and profitability in middle market M&A activity has attracted the attention of the substantial private equity funding that currently covers the market. Now, the players bolting these companies together are sophisticated “big picture” finance professionals who always have financial outcomes in sight – generating the maximum ongoing returns or divesting with the greatest profit.

What is in it for Private Equity?

But don’t these funds exist to dip in and out of industries, buying low and selling high? What interest would they have in buying a business as an add-on to another business that they have already acquired?

On the face of it, developing businesses with add-on acquisitions is the interventionist, labor-intensive, time-consuming activity you might not expect from private finance. However, where the returns justify it, PE has proved itself willing to roll up its sleeves and get involved.

According to an analyst note published earlier this year by PitchBook, the proportion of businesses held by private equity firms that have undertaken at least one add-on acquisition has increased from less than 20% in the early 2000s to over 30% in the first half of this year.

And the results for PE have been rewarding. Funds with a high proportion of add-on holdings have been posting greater returns than those with fewer such holdings. According to PitchBook, the two sample sets of add-on heavy funds that they analyzed demonstrated greater total value to paid-in ratios than less add-on loaded samples. The PitchBook report goes on to conclude that:

“36.3% of add-on funds beat the top-quartile hurdle rate, while just 10.0% of funds fell into the bottom-quartile, indicating that funds that employ the buy-and-build strategy generate superior returns.” Additive Dealmaking: Part II – An analysis of add-ons’ effect on fund performance PitchBook

So, with add-on heavy funds outperforming those with fewer add-ons, why wouldn’t PE pursue this buy-and-build policy through additive deal making? Over 25% of private equity add-on acquisitions are undertaken by funds that had already completed at least 5 add-on deals previously – demonstrating that those funds’ successes in pursuing buy-and-build made it worth their while to repeat the policy on multiple occasions.

Private Equity Influx Changing the Complexion of the M&A Market

With his vast experience in the industry, Dr. John Binkley interprets this move towards private equity add-on purchases as a culture shift within the industry that has been in the works for some time. Brokering business sales is no longer a matter between fellow business owners. The days of the business owner bowing out while negotiating a mutually beneficial deal with a local competitor are disappearing.

The current booming seller’s market remains a huge opportunity for sellers. The reason PE firms are clamoring after the American middle market is because it is so attractive and profitable to them right now. This level of demand can mean business sellers are in a position to realize extremely favorable valuations on their businesses, exiting with higher sums than they ever thought possible – but only with professional advice to match the shrewd business strategies of this professional buyer.

If you are a middle market business owner, exit planning warrants serious consideration. But without an understanding of your prospective buyer, that planning will be of little use. As we have seen, it is increasingly likely that your buyer will come from the private equity sector, and most business owners can be forgiven for having a limited understanding of how that sector operates.

Learning about the profile of your buyers is just one of the areas covered in Generational Equity’s complimentary conference – so arranging to attend could be a very wise move given the shifting complexion of the M&A market.