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Business Owners can Execute the Private Equity Acquisition Roll-up Playbook

Small businesses are the backbone of economic growth and development in the US. More than 30 million small businesses make up 99% of all US businesses. The rest–the 1%–are the Fortune 500s, the big brand names you’ve heard of with the carefully curated M&A and corporate development teams full of MBA and Ivy-League-trained talent.

They’re coached by top-tier management consulting firms like McKinsey and fed industry-leading advice from investment banks like Goldman Sachs. All of this exposure drives their corporate development. 

Behind the scenes, these teams–and their trusted advisors, are guiding the business through:

  • Mergers and Acquisitions
  • Joint Ventures
  • Strategic Investments
  • Raising Debt and Equity Capital
  • Strategic Financial Management

As a result, these businesses see the most success in terms of growth, innovation, market share, and brand name recognition. Meanwhile, the remaining 99% of businesses face more challenges in raising capital, experience chronically stagnant growth, and remain the most vulnerable to economic headwinds.

Yet, these small and medium-sized businesses are essential to our economy. According to Forbes, a 2020 jobs growth report attributed 62% of new jobs to small and medium-sized businesses. Even more impressive–the Small Business Administration (SBA) indicates that annual GDP contributions by small businesses total about half (between 44% and 60% in any given year) of the US economy.

There’s a gap between SMBs and Corporate America, and it all comes down to the accessibility of the right talent and advice. Let’s take a closer look. 

The Value of Talent in Business Growth

Behind every successful business is more than a great idea or ideal timing. Businesses are built strategically by talented teams of thinkers and doers that come together to build and execute a plan that adjusts to business capabilities and market conditions in real time.

How well this process works depends on who is part of the conversation.

At Fortune 500 companies like Hilton Hotels, Walmart, or 3M, talent acquisition designed to build the best teams is a fundamental business strategy. At Dell, the company has invested heavily in research and analysis to learn that there are two leadership traits that align with their company culture–vision and selflessness.

At Bayer, the company methodically matches employees’ personal strengths and goals with the business needs to foster a high level of engagement that drives innovation and productivity. And these are just the fundamental approaches–each of these companies makes big investments in recruiting, training, and retention to build and maintain the top teams in their respective industries. 

But for 99% of US businesses, the budget for niche research to identify the best personality types to fit a specific culture or match employee interests with business needs is pretty slim. This leaves the 1% at a significant advantage over small and medium-sized businesses regarding talent.

When it comes to strategic finance and corporate development talent, this gap leaves SMBs at risk of:

  • Missing Out on Acquisition-led Growth Opportunities
  • Lower Valuations
  • Inadequate Access to Capital 
  • Disproportionate or Stagnant Revenue Growth
  • Reactive Financial Management Practices
  • Fewer Growth Prospects
  • Business Failure

What Happens When High-Level M&A / Corporate Development Talent is Accessible to SMBs?

The right advice at the right time is invaluable to a business. When Embarc Advisors set out to make high-level M&A talent more accessible, one of the firm’s early clients successfully navigated a tricky capital raise, quadrupled their revenue, and took quick and effective action to preserve cash flow as COVID disrupted business as usual. 

As a result, they persevered and even acquired a less fortunate peer company. These wins quickly added up, and soon, they caught the attention of a public company. From a capital raise to mergers and acquisitions, Embarc Advisors helped the company across all facets of corporate finance.

Strategic M&A Advisory that Fits Your Needs

Growth comes in many different shapes and sizes. Sometimes it looks like a slightly more aggressive sales and marketing strategy. Other times it looks like buying another business to acquire their customers–or to diversify products. 

When growth looks like buying or selling, SMBs are often in new territory. Even if they’ve been through an M&A transaction before, the help of the right advisory team can make a big difference. It might even inspire a shift in strategy with a better outcome.

At Embarc, we had a client that initially engaged us to sell their business. We helped negotiate the terms and conduct the diligence process, but somewhere along the way–and 800 hours in–the founders decided this sale would not be the right fit for them and walked away.

This would have been a difficult decision for anyone–the deal was nearly done, and so much time and effort had already been invested–but it wasn’t the right fit. We provided an unbiased assessment of the pros and cons. This conversation emboldened the founders, helping them realize they could execute a private equity-like roll-up acquisition strategy.

Instead of selling, we helped the SMB raise acquisition debt to finance a bolt-on acquisition. Later, we helped the founders sell the company at a higher multiple and higher valuation with a significantly higher return on investment. 

How Embarc is Providing Access to High-Level M&A Advisory

Traditionally, high-level M&A talent has been reserved for Fortune 500 companies and new-and-shiny tech startups with a lot of buzz. But a new business model built by top-tier financial talent with an entrepreneurial spirit is changing the rules. 

Embarc Advisors founder Jay Jung spent the first 20 years of his career in corporate finance as an investment banker and management consultant for Fortune 100 companies. He has been a key player on those carefully cultivated teams for more than two decades.

“I’ve always enjoyed working with founders, entrepreneurs, and business owners. There’s a deeper sense of fulfillment there that just isn’t the same when working with Fortune 100 companies.”

Founder Jay Jung

What Services Embarc Advisors Offers

Now, Jay and his team are providing a full range of corporate finance advisory services designed to make high-level M&A advisory more accessible to small and medium-sized businesses. This includes:

  • Executing Buy-Side Acquisitions 
  • Raising Debt and Growth Equity Capital to Fund Acquisitions 
  • Running Sell-Side M&A Processes 
  • Providing Strategic CFO Services to Integrate Acquisitions & Drive Growth

A New Approach with a New Fee Model

One of the biggest obstacles in top-tier financial advisory has always been the steep costs associated with success fees. This is also one of the most significant differences between Embarc Advisors and other traditional advisory firms. 

At Embarc, Jay believes that the true motivators in success-based fees often don’t translate to authentic value for the client. Rather than attaching fee models to outcomes–which is common in financial advisory–Jay prefers to bill an hourly rate. 

A success-fee-based model drives the best M&A practitioners to seek larger deals. Large deals are generally associated with larger fees and can quickly price out smaller businesses. Embarc has found that an hourly-rate-based ‘time & materials’ fee model is better suited to support founder-owned middle market companies and SMBs. 

This allows the team to scale its efforts according to the size of the deal while maintaining a similar hourly rate. A $5 million dollar deal does not require the same amount of work as a $50 million dollar transaction, so scalability is important.

Through this model, Embarc has been able to work with companies on acquisitions as small as a few million dollars all the way to eight-figure, cross-border deals. 

Bottom Line–M&A Advisory is a Must for SMBs

Beyond fee models, Jay says that companies should always seek advice from the right experts–at the right time. Large companies seek advice when they execute on M&A deals or raise large amounts of capital. Smaller companies tend to skip some of this advice due to smaller budgets, but that’s actually a big mistake.

Smaller acquisitions tend to be more difficult than large deals because accounting, financials, and legal matters have less oversight. Large companies have audit requirements and strict financial reporting practices in place, which puts them in a cleaner position going in. Whether the deal is between an SMB and a larger public or private-equity-owned company or two smaller companies–the chances are that you will benefit from high-level M&A advisory.

Are you ready to talk? Contact our team at Embarc Advisors to learn more about how we can help your small or medium-sized business. 

Still thinking? Learn more about selling your business with our blog post: Best Practices for Due Diligence Support

See the Difference that Embarc Advisors Can Make for Your Business

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