2024 Gloom Will Not Reach These Founder CEO's

This weekend's WSJ predicted a "Gloomy 2024" for the Private Equity industry caused by the toughest fundraising environment since 2008.  2023 fundraising was about half the prior year and some suggest there is a "real correction" ahead. 

Given PE's market impact as a buyer and owner of acquisitive platform  companies, lower amounts of capital to deploy will likely ripple in many directions.

I've noticed that many lower middle market founders (below $5M ebitda) tend to focus exclusively on internal factors like revenue growth, increasing ebitda and new market opportunities when considering a potential transaction.   Few also consider external factors that will undoubtedly impact their value, limit or expand opportunity and allow for maximum value in a transaction.   

I had the pleasure of working with seven founders in the past year who created a better future for their employees, customers and shareholders by capitalizing on unique external factors in addition to their company internal performance. You can listen to several of these founders at SecondBitePodcast.

Unique, opportunistic deals can have an out sized impact on valuation for company founders, particularly at the "second bite".  Helping an acquirer exceed an ebitda target that creates "multiple expansion" or filling a service need that allow for cross sell and retention improvements (a typical result of additional service offerings) will often accelerate metrics that increase overall valuation. 

If the near term does turn gloomy, partnering with PE and transforming into an acquirer when valuations are low create real opportunity and enhance long term value creation opportunities.

While we only represent "sellers", I am currently aware of several PE and larger marketing firms anxious to acquire Shopify, Hubspot and e-commerce services capabilities to round out their current offering.  Other top PE groups are actively searching for performance marketing in the healthcare space, while others wants similar capacity in the higher education sector.  Analytics, retention marketing and "paid social" is also in demand.

Most acquirers offer significant cash at closing and equity upside along with new customer access, larger sales function and more robust internal support. The leverage created from my 2023 transactions are likely to out perform whatever internal accomplishments were anticipated by the founders.

Gloomy or sunny, CEO's who remain aware of the world outside their company and the unique opportunities available to them will be the real winners in 2024.