We keep hearing a lot about mergers and acquisitions and how this large company gobbled up that small, mid-sized or other large company. This year we are seeing record numbers of them.
Some of them are huge and running into the billions of dollars.
An interview we found on the online insurance news service, Insurance Business America with Rick Dennen of Oak Street Funding said not all acquisitions are of the mega-sale variety. In fact, Dennen — whose company provides financing for agencies entering into M&A territory — said a huge number of them are small agencies buying other small agencies.
Or it’s someone in the company buying from the owner or owners.
“We see this all the time. We see these smaller [M&A] deals — they’re just as prevalent. But it’s a friendly structure, and a succession way for these older guys to get out,” Dennen said.
His company’s focus is the middle and smaller market and loans ranging from $25,000 to $25 million. The big difference between the high end loan and something much lower is — as noted earlier — friendliness. Smaller deals are often between family, friends or acquaintances.
“Most of it is succession stuff, when you’re dealing with the smaller [deals]. You might have someone in their 60s talking to someone in their 50s, and that 60-year-old is saying, ‘Look, I’m getting to that point where there’s still a lot of regulation, there’s a lot of change, I don’t want to update my technology and invest in the business, so let me sell it to you. Give me 50, 60, 70% of the cash up front, and then I’ll transition the book to you over a three-year period, and you can pay me the remainder of three or four years’,” Dennen said.
He calls it, “sell it to a buddy and everyone is happy. It’s very friendly, smaller deals, as opposed to an [actual] M&A strategy.”
Source link: Insurance Business America