Glenn Oken is a managing director at Mangrove Equity Partners in Tampa, FL, where he focuses on originating deal opportunities and qualifying acquisition candidates. Glenn has been a private equity investor focusing on the lower middle market for 27 years and has completed 129 transactions across 57 different niche industries.
- For lower middle market companies in Florida, there are no longer geographic barriers. Money is willing to travel.
- However, capital for startup companies may more commonly find seed funding through local angel groups and investors. Once they prove their business model they tend to attract interest from local investors, or from the start-up focused areas of the country.
- Face-to-face meetings are essential in M&A deals. While numbers are important, relationships are key. In-person meetings give both sides an opportunity to assess the character of a potential partner.
- As equity partners seek out lower middle-market companies, they look for those whose products or services are essential, non-cyclical and non-commoditized. Often, this ends up being companies with some measure of engineering content, customization, or technical capability who offer mission-critical products or services.
- Thanks to the strength of the manufacturing and industrial services sector, the South may be one of the best regions for investors focused on those industry categories.
- The M&A market has not yet seen a sudden mass exit by Baby Boomers. Multiple factors, not just age, are involved in an exit decision. Thus, deal volume seems to have followed a natural cycle over the years, rather than a sudden deluge of exiting Baby Boomers.
Q: What are you recognizing in the merger and acquisition market as it relates to access of capital for companies headquartered in the South?
A: There is a lot of capital chasing good companies in the market today. Investors are willing to travel to find strong businesses in which to invest. This gives lower middle market companies in the South a wealth of opportunities.
Q: Is travel necessary?
A: There’s no substitute for sitting down with a company face to face. Not only is it unwise to partner with someone you have not spent a significant amount of time getting to know, it is very difficult to effectively have serious discussions when not speaking in person. We also find that the more people know us, the better off we are when competing to partner with a potential portfolio company. Integrity, personality and value add have a lot to do with being a good partner, and those are difficult to fully gauge over the phone.
Q: How available is capital compared to two years ago?
A: Debt is readily available. On the equity side, there seems to be far more dry powder available for companies than ever before. The reason for this is that there is an increasing number of investors focusing on private equity, which has caused an increased number of first time funds, and the firms that have performed well historically are raising more capital.
Q: Investment Banking South’s recent survey on the Southeastern merger and acquisition market suggests that it can be difficult to find quality companies in the region. Has this been your experience?
A: It depends on how you define quality. For some, quality implies over $5mm in EBITDA, and a nearly perfect company. But, we love the scenario where we have an extremely well positioned company slightly smaller than what many funds seek, that could use some help from experienced operationally focused partners. We really enjoy working with entrepreneurial businesses, since our operating partners, who have half the carry in our fund, possess the skills and tools necessary to help entrepreneurs overcome hurdles they are facing in their businesses. It’s an opportunity for us to come in and add value. Some of the companies we’re working with may initially have functional areas that are not optimized, and some people would consider that lesser quality, we don’t feel that way at all. We see that as an opportunity.
Q: What are the criteria you’re looking for?
A: We’re looking for stability, growth and value creation potential. When we’re solving for stability, it leads to less cyclical companies and less commoditized products or services. The companies are often technical (though not high-tech) and essential, rather than glamorous. They provide mission-critical products or services as opposed more discretionary offerings. The companies we partner with have a reason for being in the value chain.
Q: What’s an example of this kind of business?
A: On the service side, there’s a company out of Richmond, Virginia, called Integrated Global Services, which is a leader in providing in-situ metal spray and weld overlay sacrificial coatings to slow down corrosion inside of boilers in highly corrosive environments like petro chemical, coal fired power plants, or pulp and paper plants. Given the nature of the corrosion taking place within these vessels these services must be performed on a regular basis, annually in most cases. This type of must do, or “mission critical” service is what we look for in service focused businesses.
Q: What stage companies have the hardest time finding capital?
A: Earlier stage companies are far more difficult to finance than established companies. In our world, we’re looking for companies with a history. Venture funding is categorically harder.
Q: How would you compare M&A activity in the Southeast to the rest of country?
A: Fairly strong, perhaps the strongest because of the wealth of manufacturing in the Southeast. There are many industrial manufacturing niches spawned by larger industries, and the Gulf region supports a wealth of industrial service and manufacturing sectors.
Q: Are you seeing money coming into FL?
A: Yes, larger fund investors are coming from the outside. As the business environment matures and businesses continue to grow within the state, more and more investors are spending time down here.
Q: The Investment Banking South survey suggests that there are more opportunities with companies in the $2 to $8 million range in the region than the upper middle market. Would you agree?
A: Yes, this tends to be the case in the South, and elsewhere.
Q: What do you do to help companies reach a growth inflection point?
A: Different companies have different opportunities in terms of optimization. A common and important opportunity is to enhance their ability to collect, extract and analyze data to support better decision making. Better information can help bring focus to what activities are the most impactful.
When you have a growing business, it’s important to recognize which things will have the greatest impact. And we help businesses execute and focus on these areas; ones that will significantly increase shareholder value. It is important to note that increasing shareholder value is not just about increasing profitability. There are other risk reducing and professionalizing characteristics that are important to future suitors, especially strategic suitors. We also free up company owner/operators to spend more time in the functional areas that they most enjoy.
Most of our investments are majority recapitalizations. Company owners seeking a recap are not necessarily looking short term for the last dollar, they’re looking for a partner and transaction that will maximize overall value. A partner who can materially help to build the value of their retained ownership, the second bite of the apple, will often win the day. We feel that the ideal partner brings a combination of this capability and character.
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