May 2018 Newsletter
Early last month, there was a good piece in the Orlando Business Journal about the recent M&A activity in Central Florida and the complexities that go into those types of transactions.
More insightful, though, than the various structures and unique terms a given deal may include was the psychological toll that the sale of a business can take on its owners — especially when those folks are the people (or are related to the people) who started the business. For many business owners, their identity, time, and much of their wealth and livelihood is tied up in their business.
The Conway Center for Family Business estimates that the average lifespan of a family-owned business is 24 years. For most of us, that represents roughly a third of our lifetime. So it’s no wonder that the idea of transitioning out of it comes with a boatload of stress. From worrying about your beloved employees to you and your family’s financial and personal future, there’s a lot of emotion involved.
It doesn’t help matters that the due diligence process is often arduous and chalk-full of scrutiny. So why go through the process at all? Why not pass it on to the next generation? Well, according to Bloomberg Business Week only 40% of U.S. family-owned businesses are passed on to the second generation. For third-generation, it’s a meager 13% — and those numbers are trending down. Meanwhile, the number of folks reaching retirement is at an all-time high. The U.S. Census Bureau reports that 10,000 baby boomers retire every day; many of them are business owners.
So, if the most common method of business-succession of the past is trending down while more owners than ever are looking to move towards retirement, what gives? Private Equity and strategic competitors seeking consolidation are becoming the new norms for business owners looking to move on to the next chapter of their lives. One stark proof point: deal activity in U.S.
Private Equity hit new highs in 2017 in both deal count and deal value, and Pitch Book believes a new record could be hit in 2018. Due to low-interest rates and an influx of money into PE funds, there’s more capital than ever that needs to be put to work. How does that affect business owners? Higher valuations! Monetarily, it’s one of the best times ever to be the captain of a profitable private business with your eyes on the exit door.
That doesn’t erase the fact that the sale process comes with the aforementioned challenges. But like all great outcomes, the obstacles are there to be overcome and if you’re working with an experienced team of advisors, it can make the journey much more palatable (and profitable).
If you or anyone you know is considering raising growth capital or selling/buying a business, please let us know. We’d love to chat.
Portfolio company that just closed out its seed round
Rentivity, a Florida based real estate technology company, successfully completed a fundraising round with NewGate Capital Partners of an undisclosed amount. Rentivity is launching the first end-to-end digital marketplace for single-family home rentals. Their solution integrates and supports all users (owners, landlords, property managers, tenants, vendors, etc.) in a single, mobile friendly, platform. Rentivity will save time and money for both renters and property owners while providing detailed reporting and a digital audit trail of all transactions.
You can visit them and stay up-to-date on their full market launch at rentivity.com.
Machine-Part Manufacturing Company for Sale
NewGate Capital Partners has recently listed for sale a manufacturing company that is focused on producing machine parts for envelope, plastic bag, and notebook manufacturers. The Company was founded in 2005 and currently employs 11 people.
It is headquartered outside of Pittsburgh, Pennsylvania in a 10,000 square foot facility and mostly serves clients throughout Pennsylvania. Their niche-focus is a competitive advantage that has resulted in year-over-year sales growth of 13%. They finished the 2017 calendar year with just over $2 million in sales and an adjusted EBITDA of $600k and are expecting similar or better results for 2018.
The owner is currently looking to retire but has management in place that can take over post-transition.
The sale of the business includes the land and manufacturing facility.