How to Find Middle Market Companies that Are for Sale
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Acquiring Middle-Market Businesses
Are you looking to buy a mid-sized company? The middle market is a great place to begin your search for an established business with potential for growth. But where do you start when it comes to finding middle-market companies that are for sale? In this article, we'll provide an overview of the steps you should take to find a potential middle-market business for your investment strategy.
What are Middle Market Companies?
Middle-market companies are typically defined as businesses with annual revenues between $10 million and $500 million. These companies are commonly privately held and have a well-established customer base and operations.
Middle market companies can have a significant presence in their respective markets or industries. They are not niche players but typically compete on a broader scale. They often have a diverse customer base, reducing their dependence on a small number of clients, but they may face certain risks associated with their growth ambitions and market competition. These companies need to manage these risks effectively to sustain their success.
Why are middle market companies interesting for investors?
There are several reasons why private equity firms and strategic corporate buyers might be interested in buying a middle market company. Firstly, middle market companies are typically established in their industry, which makes them interesting investment targets. They are still often very focused on growth and expansion, which gives investors the indication that there are probable surplus on the horizon. Furthermore, middle size companies are able to respond to changing market conditions and customer needs faster than corporations. They have market share or new markets to win, and also the ability to adapt relatively fast to do so. Furthermore, middle market companies often prioritize innovation, and they have less rigid bureaucratic structures hindering innovation than larger firms.
Second, middle market businesses generally have a higher level of profitability than smaller businesses and therefore acquiring middle-market businesses can be more attractive to investors looking for steady returns. If middle market companies have been able to weather the economic downturns, they have demonstrated the executive teams' capability to steer the company in various market conditions. While they may not have the financial resources of large corporations, they have most likely had access to capital during their growth.
Third reason for why investors are interested in middle market companies is the culture and resilience. The companies are often owned by a small group of individuals or a family. This has made the ownership more motivated to maintain their market position, having more likely guarded stabler returns throughout the company's history. They can have a more formalized management structure than small businesses, making them more attractive and less risky investment targets than startups and other small companies. However, many middle market firms retain an entrepreneurial spirit despite their size, leading to a dynamic and innovative corporate culture. Over time, they have most likely also had the time to build employee talent pool which knows the company practices and systems, and stays after the acquisition or investment, keeping the company growing.
How to find middle market companies to buy?
The systematic process for finding middle-market companies involves market research, company screening, and contacting companies that meet the predefined criteria. There are six main strategies to conduct the company research, used parallel to each other. If you’re looking to acquire a middle-market company, here are the tricks to help you locate potential opportunities.
Aspects that may indicate the company's readiness for sale:
- Age of the founders: An important indicator is when founders are nearing retirement age, as this often suggests a favorable time for considering a sale.
- Company establishment: The timeframe since the company's founding provides insights into its maturity and potential preparedness for an exit.
- Duration within private equity (PE) or venture capital (VC) portfolios: Exits tend to become more relevant after a company has spent approximately 5-8 years under the guidance of PE or VC firms.
If you’re looking to acquire a middle-market company, there are a few tricks for market screening. Next we discuss the sources where you can locate these opportunities.
Software to help you find middle-market companies
One of the best places to start is an intelligent company platform that includes middle-market companies and basic information about them. Deal sourcing software helps you save time in building acquisition target lists. The software gives the user access to the data, and ensures they never miss a potential match.
These services provide a search platform with search features that find companies based on key factors affecting their willingness to engage in a sale. The platforms find potential acquisition targets based on what they actually do, not based on industry or business registry codes. Due to the highly specific nature of the required filters, utilizing deal sourcing software tailored specifically for the mergers and acquisitions (M&A) use case is generally associated with the highest return on investment (ROI).
Inven is an AI-based platform that finds middle market businesses for sale:
- With Inven's tool you can get a full list of companies that match your criteria, based on niche keywords or your own previous deals. See for example a list of interesting family-owned software companies from the United States, built with Inven's platform.
- Inven has a tailored Intent to Sell -filter which finds the most potential targets from the middle market and filters out those unlikely to consider a sale based on company characteristics.
- AI Screener feature will do the initial analysis of the acquisition target long list, saving your time for more in-depth analysis.
The filters include company's business area, ownership, funding, geographical location, operational locations, size, and other features. For those looking for suitable acquisition targets, Inven’s software tool offers an efficient way for quickly obtaining a middle market companies list. Alongside the search results, the platform provides contact information and financial information where applicable.
Company databases and purchased intelligence
Commercial company databases with purchased business intelligence can uncover opportunities by scanning events in the markets. The sites are specialized for selling business intelligence to companies and offer different packages at different price points. The databases can be designed to support the storage, retrieval, and analysis of business-related data collected by the data provider. They play a role in their customers’ business intelligence, which involves collecting, processing, and analyzing data. They include a lot of data, but with an abundance of data points, the user interface can be relatively cumbersome and take time to fully take advantage of.
- Mergermarket
- The Middle Market
- Bloomberg Deals
- Reuters M&A
- Financial Times
- The New York Times Dealbook
- The Wall Street Journal
- DealStreetAsia
- SeekingAlpha
- Zoominfo
- Fortune
- MarketWatch
Specialized origination services
There are many firms which provide deal origination services conducted by experts. These companies use their tools and networks to find companies according to their clients' criteria. We have compiled a list of deal origination firms here.
LinkedIn Sales Navigator
LinkedIn Sales Navigator is a premium subscription service offered by LinkedIn, designed for sales professionals, business development teams, and other professionals focused on lead generation and relationship-building. Sales Navigator offers sophisticated search capabilities, allowing users to define specific criteria for their search, such as industry, company size, job title, and location. The service provides lead recommendations based on the user's preferences and network connections. Users gain access to detailed information about people, including their job history, company details, recent activity, and shared connections. Sales Navigator offers an InMail feature for connecting with potential companies.
Networking with local businesses
One way to find middle-market companies to buy is to attend networking events or business seminars that focus on mergers and acquisitions. In these, you can get information and create connections for later stages.
Connecting with investment bankers and business brokers
Additionally, you can contact private equity firms, venture capital firms, and business brokers who specialize in middle-market deals. Whichever route you choose, it’s important to focus on the specific professionals that operate in your specific niche and geographic area.
Strategies for Contacting Middle Market Companies
After the market screening and company identification, contacting potential targets encompasses two primary approaches: bulk outreach, where thousands of messages are sent en masse, and customized outreach, which involves tailored efforts such as creating personalized presentations to persuade company owners to consider selling their businesses. In this section you can find the typical practices and best tips for finding and approaching middle market companies that are for sale.
It is important to consider who are the key decision-makers involved in the business. In order to reach the right people, a deal sourcing platform will provide great value. Inven offers the ownership data with the list of middle market companies. So, when you are looking for potential middle-market companies, you can directly see their ownership and contact information already in the search results. This can save you a lot of time.
Bulk email campaigns
First up, bulk email campaigns. With drip campaigns and a combination of other methods, you can reach a large number of companies quickly. A drip campaign is a strategy that involves sending a series of automated, targeted messages to a specific audience over a period of time. Drip campaigns typically start with an initial message, followed by a series of additional messages that are triggered by specific actions or behaviors. These messages can be delivered via email, social media, SMS, or other digital channels. By delivering relevant, timely content to prospects, drip campaigns can help you build relationships with potential middle market companies, increase engagement, and drive more deals over time.
There are various software providers that can help you send these drip campaign outreach automatically. You can use Inven to find all relevant companies and their contacts and then go to software providers such as Hunter, Snov.io, and HubSpot.
Customized bulk email campaigns
For a more targeted approach, try customized bulk email campaigns. First, you should use Inven or other similar tools to find companies that match specific criteria. With Inven, you can create a custom list of companies operating in specific industries, being family-owned, their founding year - among other criteria.
You can use this list and the contact data to send highly customized emails to these potential companies. You could send emails through your CRM or email provider, or you can use automated email messaging. The key here is to approach with something more customized than a generic email. Consider using information about their ownership or founding year.
Reaching out with LinkedIn messages
LinkedIn messages are also an effective way to connect with middle market companies and their owners. Build a list of companies using the best software and consider investing in Sales Navigator for better results. LinkedIn Sales Navigator allows you to find prospects in the target companies, create lead lists, and send InMail to them straight to their LinkedIn message inbox.
Cold calling, voicemail and mail
Cold calling and leaving voicemails may also work, as can traditional mail. Surveys suggest that nowadays, cold calling, voicemail, and traditional mail are rarely used, which makes company owners pay more attention to those. While you’re searching for relevant companies in your niche, you can also get their phone number with Inven. Some of these methods might be suitable for your interns too! It gives them a nice challenge and proves to be meaningful, while it’s something they can easily manage.
Niche websites
For even more targeted outreach, consider finding niche websites where middle market companies spend their time. Some of these sites even allow you to send messages directly to potential sellers. This can be highly effective as you might stand out from the crowd!
Contacting family-owned businesses that are ready to retire
What many business brokers and investment bankers do to find middle-market deals is to contact family-owned businesses to see if they are ready to sell. Even better, you could contact family-owned businesses where their owners are close to retirement age. This might indicate their willingness to sell and change to a looser lifestyle. You can find these companies by searching for family-owned businesses and checking their owners and their age. Tools like Inven might come in handy for this.
Highly customized outreach
If you prefer a low-volume but highly targeted approach, focus on highly customized emails followed up with customized LinkedIn messages and phone calls. Introductions are also a great way to make a connection, and custom pitch decks can help convince companies to sell.
If you know exactly what you’re looking for and are able to build a high-quality list of potential companies, you should invest time in a more customized outreach. The best practice is to first contact the owners either with email or phone call. Afterwards, you should follow-up and connect with them on LinkedIn too to make sure they remember you and your services. Contacting them on various platforms will make sure you stand out.
In short, there are many ways to find and approach middle market companies for sale. Try a combination of these best practices and tips to see what works best for you. Happy hunting!
Analyzing the Potential Acquisition Targets
Middle-market M&A Due Diligence
When planning to acquire middle-market businesses that are available for sale, a crucial step is to evaluate their financial position and performance over time (return on investment (ROI), debt-to-equity ratio, debt-to-asset ratio, and so on). Advanced software solutions can be a beneficial tool in obtaining a comprehensive overview of a company's financials, especially during the initial search phase. By leveraging the capabilities of the best software solutions, you can gain valuable visibility into a middle-market company's situation and growth trajectory.
Company registries contain some information on the financials depending on the company type and quality of the registry. Revenue estimates and headcount growth data can be also found directly from Inven. Inven has financial data of 43M+ legal entities from Belgium, Denmark, France, Germany, Ireland, Italy, Luxembourg, the Netherlands and the United Kingdom.
Analyzing the Market, Industry and Strategic Position
When analyzing the strategic position of a middle-market company, it is crucial to look at factors such as the company's industry, competitors, customers, products, and services. One of the most crucial aspects alongside a great team are the company's future plans and potential for further growth relative to the industry. Does the company have sustainable capabilities and motivated personnel for future expansion?
When researching potential middle-market companies to buy, a thorough market and competition analysis is conducted. The industry and niche in which the company operates sets the frame for future growth. Building a clear understanding of the industry dynamics and competitive landscape and trends is a necessary step. Market mapping will reveal who are the dominating competitors and what are the mid-sized target’s possibilities to expand its market share. It makes sense to use competitor analysis tools to form a clear picture of the game field.
Roadmap to a Successful Mid-Market Acquisition
In conclusion, acquiring a middle-market company is not the simplest process, but with the right strategies and platforms it is easier to finalize the sale. Before making an offer, it is beneficial to take advantage of proper deal sourcing and market mapping tools to build a list of potential mid-size companies. The tools reduce the time used in manual research and help in identifying the owners of middle market companies for customized outreach.
Key Considerations in a Successful Mid-Market Acquisition
- Set a budget: Before you start searching for a company, set a budget and determine how much you are willing to spend. This will help you narrow down your list of potential targets.
- Look for the right fit: When looking for a company to buy, look for one that fits your goals, objectives, and strategy. Make sure the company has a solid track record of success and a strong customer base.
- Research: Conduct thorough research on the company and the industry to understand the risks and rewards associated with the acquisition.
- Verify: Verify the accuracy of the information provided by the seller.
- Analyze: Analyze the data to uncover any potential risks associated with the acquisition.
- Negotiate: Negotiate the terms of the acquisition to ensure that you are getting the best deal possible.
- Finalize: Finalize the deal and close the transaction.
Let Inven help you find all the potential middle-market companies
Inven is a software specialized to find middle-market companies. With the software, you can easily find companies based on what they actually do. You just need to input 1-3 example companies or keywords and filter based on location and headcount. Feel free to book a demo if you're interested to try it out!