Mergers & Acquisitions in the Mid-Market

Insights

Five ways to be “Strategically Opportunistic” 

 

As mid-market business acquirers, with a more entrepreneurial investment approach to private equity, we are often asked to consider potential deals across the globe. 

 

This is not always easy, because finding good opportunities in the mid-market is really a mix of science, art, intuition and luck.  But it is also very sector-specific and the greater the specialism (of the acquirer), the lower the risk of failure, which is why we tend to stick to our core areas. 

 

It is both presumptuous and impossible to opine in a few words about what finding the right opportunity looks like for mid-market private equity investment, but here are some guiding principles which have worked well for us.

 

1/ Forget about public (or media) opinion 

 

Good private equity investment has nothing to do with what might be popular. Indeed, my preferred approach is generally to look for opportunities in markets that are out of favour, usually for temporary reasons. For example, a natural resources deal in Australia

 

2/ Take calculated risks or run with “informed gut feel”

 

With Europe becoming more Socialist, at least in the eyes of many private equity investors, Brexit looks like an increasingly favourable outcome for the UK. It could, fiscally (and perhaps socially) develop a European quality of life with a US approach to fiscal policy.  There are admittedly unknowns on how the Brexit negotiations will pan out, but in the current political climate and, with a general desire to agree terms, now feels like a good time to back UK deals. No one should be surprised, however if we also see a strengthening pound, so the best deals could be in the short term.  

 

3/ Focus on longer-term upside 

 

The Gulf, particularly the UAE and Saudi, used to be heavily restricted but is increasingly open to foreign private equity investment. Saudi in particular is out of favour because of allegations of hacking and state back assassinations but, unlike many media commentators in the West who pretend to be appalled by this, I do not think it makes Saudi Arabia very different from most other countries.  Although there is currently little in the way of mergers and acquisition activity, I think this is likely to grow over time.

 

Argentina also looks interesting, particularly for outsourcing, because it’s full of highly educated individuals with great language skills. The economic woes of the country have made local employment relatively cheap when earning revenues in harder currencies.

 

4/ Follow the money 

 

It is impossible not to be present in the US. The sheer size of the market and the wall of money going after deals is an opportunity for private equity investors, irrespective of scale. As the biggest truly single market in the world for mid-market business investment, there is always something here.

 

5/ Don’t exclude the real outliers 

 

Without specifically looking for unusual choices, there are markets which are real outliers which few others are looking at. Yemen, in oil & gas, is a case in point. This is way off the radar for most private equity players, and would fail getting to most credit-committees anyway, but we are not hampered by those constraints. The major risks are obviously navigating the local politics while having little control over the current dispute with the Gulf States.