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Going Big at BIG Council: An Overview of the M&A Market

North Carolina’s BIG Council is known for coordinating must-attend events for regional business owners. I (Frank) took part in a BIG-organized event focusing on strategies to build, scale and monetize a high-performance business. I co-led a presentation with DecisionPoint Advisors’ Managing Partner Doug Ellis on the region’s mergers & acquisitions (M&A) market. It was a point-counterpoint discussion: I talked about traditional businesses, while Doug spoke on tech companies.

Read the takeaways below:

 

The Traditional Market

For ‘traditional’ businesses (basic services + industries), the force driving M&A is private equity investing, by funds or family offices, acting either directly or via add-on acquisitions by their portfolio companies.

There is also an increased appetite to look at ‘stretch’ deals — deals that are riskier or more complex than usual. For business owners looking to grow or sell, the headline is “be prepared” and know you’re selling into a 1% close ratio market. Before seeking capital, businesses should build a five-year projection model that can withstand scrutiny and that an investor would find attractive.

 

The Technology Market

M&A activity is incredibly robust in the technology space, and it’s driven by a few factors. Above all, there are huge hoards of cash on balance sheets, so acquisitions are appealing — and often, necessary. Many companies have “righted their ships” financially, boards are confident and quotas are high. Businesses have found that they can’t meet their goals through organic growth alone, so growth through acquisition has become all the more important.

Increasing competition also plays a role. There’s a strong appetite for differentiation and IP in tech, and the big companies are always seeking new products and features.

Corporate development officers are looking at lots of deals for every transaction completed. They are both under pressure to add revenue and to avoid risks. Therefore, the due diligence process is intense, even for smaller deals, and it’s all the more important for a seller’s legal, finance and IP “houses” to be in order.

 

The SQL Sentry Story

Charlotte has some talented entrepreneurs and real success stories. SQL Sentry, a bootstrapped IT company, for example, took $25 million in growth capital from Mainsail Ventures. Following the presentation I led with Doug, SQL co-founder Ken Teeter and I did a “fireside chat” about what changes this investment has created for him and his company.

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