The most common groups of financial buyers are Private Equity Groups (PEG’s). They raise their investment capital from College Endowment Funds, Pension Funds and High Net Worth Individuals, to name just a few.
The companies they acquire must either be large enough to be considered a "Platform Company," or be a synergistic Add-On Company. A Platform Company is usually already a midsize or large firm that holds a dominant position within its industry. Once a Platform Company is acquired, they seek to purchase smaller companies within the same industry. The financial buyers will provide the capital that enables the Platform Company to grow internally as well by way of acquisitions of similar businesses. When the Platform Company becomes large enough to be an attractive target for either being acquired by a larger company or to take public, the financial buyer will sell the company, and in most cases, provide a substantial ROI to the investors which makes them willing to invest in the next acquisition.
The financial buyer's seed capital usually comes from their pool of investors. Long term financing is usually arranged through banks and mortgage companies. Often mezzanine financing is needed to bridge the gap between the sales price and long term financing. Mezzanine financing is often unsecured or at least in a secondary position to the long-term lender. The mezzanine lender often receives stock in the company being acquired as an additional incentive to provide the needed funds. Often, the seller is asked to take back stock in the acquired company as part of the selling price.
- Target companies who are a dominant player in their industry and already have the infrastructure to support a regional or national operation. Generally, the Platform Company must have gross revenues in excess of $25 million.
- Add-On Companies typically have gross revenue in excess of $5 million and are in the same industry as the financial buyer's Platform Company.
- The target company must have key management personnel who are willing to stay on and manage the company.
- Financial buyers generally have no interest in industries where the total market for the industry is small with little room for significant growth.
"I have been through other acquisitions, and I am please to inform you that the negotiations to acquire GrantAir were a most delightful experience which none of the others could surpass."