WEBVTT - Beatrice Mitchell on Lack of Supply in the M&A Space (Audio)

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<v Speaker 1>and Caterpillar, while Nike led to the downside. Apple approached

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<v Speaker 1>a hundred hours of share. Computer Science has gained as

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<v Speaker 1>much as forty to our sixteen year high, well Ali

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<v Speaker 1>breaking news to ascom Bill Maloney. Charlie all right, thank

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<v Speaker 1>you very much, Bill Maloney, and here live breaking news

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<v Speaker 1>business flash. You're listening to taking stock with bim Box

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<v Speaker 1>and death Lenas on Bloomberg Radio. We are broadcasting live

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<v Speaker 1>from the Bloomberg Breakaway. Some of it is a two

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<v Speaker 1>day conference that brings together a select group of executives,

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<v Speaker 1>all who lead high growth companies. And you know, one

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<v Speaker 1>of the things that happens if you lead a high

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<v Speaker 1>growth companies, perhaps someone would like to acquire you buying

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<v Speaker 1>the growth instead of building it themselves. Well, here to

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<v Speaker 1>tell us more is Beatrice Mitchell, co founder and managing

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<v Speaker 1>director of Sperry Mitchell and Company, and she joins us, now,

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<v Speaker 1>thank you very much for being here. Beatrice, thank you

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<v Speaker 1>for having me. You know I note also that you

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<v Speaker 1>are the co author of the book entitled The Complete

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<v Speaker 1>Guide to Selling Your Business, and it's also been published

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<v Speaker 1>in Chinese recently. Tell us a little bit about how

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<v Speaker 1>you look at the middle, the small the mid market

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<v Speaker 1>and this tension that exists. It's their company, they built it,

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<v Speaker 1>but also there might be someone out there that wants

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<v Speaker 1>to buy it. Well, the tension probably most likely what

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<v Speaker 1>you see them most of is somebody who says, I'm

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<v Speaker 1>really happy doing what I'm doing. I'm sixty, I'm sixty two,

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<v Speaker 1>maybe i'm fifty five, and I just I really don't

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<v Speaker 1>want to give it up, but I know I should.

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<v Speaker 1>I should start to think about the fact that I'm

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<v Speaker 1>probably not growing the company as as much as I

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<v Speaker 1>should because I've got too much money tied up in it,

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<v Speaker 1>and so I'm I'm feeling very risk It feels very

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<v Speaker 1>risky to me to double in size, so I won't

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<v Speaker 1>do that, and I know that's bad. Um Or I

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<v Speaker 1>realized I should be letting a second tier management team

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<v Speaker 1>come in, but I'm sort of a control freak, most

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<v Speaker 1>of them are, and so I don't want to let

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<v Speaker 1>that happen. That's going to hold the company back. Or

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<v Speaker 1>I'm worried that I've had a health scare and I

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<v Speaker 1>don't really want to face that, but I know that

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<v Speaker 1>I should start to think about selling. So that's those

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<v Speaker 1>are the sort of tensions or has so much tensions,

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<v Speaker 1>but issues that we patterns that are repeated over and

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<v Speaker 1>over again. So what is going on right now? I

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<v Speaker 1>love this space, this small and medium sized enterprise space

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<v Speaker 1>because I'm a macro eco kind of person, but I

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<v Speaker 1>think it's so rich in terms of getting an understanding

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<v Speaker 1>if it's really going on with businesses. What are you

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<v Speaker 1>seeing right now? What's happening, what's not happening? Well, right now,

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<v Speaker 1>the number of deals being done UH is down significantly down.

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<v Speaker 1>So last quarter first quarter of sixteen, there were three

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<v Speaker 1>d and thirty deals done in what we call the

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<v Speaker 1>mid market space, which is companies that that will trade

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<v Speaker 1>for anywhere from ten million to a hundred billion. That's

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<v Speaker 1>a I know it's a big number, but that that

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<v Speaker 1>is how it's defined, or most people define it. Um

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<v Speaker 1>and uh. To put this in perspective, the the first

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<v Speaker 1>quarter of fifteen, there were four under ninety three deals

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<v Speaker 1>done and to really put in perspective and oh seven

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<v Speaker 1>there were six dred and seventy one deals done. So

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<v Speaker 1>there's anyway the last this year versus last year, there's

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<v Speaker 1>definitely going to be a decline. There's there are less

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<v Speaker 1>companies for sale, less deals getting done. Why not for

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<v Speaker 1>lack of finance? That's what people this is the knee

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<v Speaker 1>jerk reaction is though the banks aren't financing, That's not

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<v Speaker 1>really what's going on. There's plenty of money out there.

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<v Speaker 1>There's there are um lots of non bank lenders like

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<v Speaker 1>I'm just you know, goal of our antiers that are

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<v Speaker 1>very aggressive and happy to lend into this market. So

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<v Speaker 1>it's not lack of fantasy. It's really lack of of supply.

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<v Speaker 1>And I couldn't tell you exactly why there's lack of supply.

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<v Speaker 1>I think maybe a lot of companies were sold last year. Um.

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<v Speaker 1>What I find is that sellers are much more sophisticated

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<v Speaker 1>than they used to be. When I say to somebody

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<v Speaker 1>that I first met, So tell me what your ebit

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<v Speaker 1>dot is and I expect them to then say what's that?

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<v Speaker 1>They all say, yeah, and exactly what that is. And

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<v Speaker 1>and these are what my ad backs are. I mean,

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<v Speaker 1>they're they're one step ahead of the game. Um, so

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<v Speaker 1>it's it's I think they probably understood a lot of

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<v Speaker 1>people understood that last year, the last couple of years

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<v Speaker 1>have been great times to sell. People got very scared

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<v Speaker 1>after the Great Recession, and as soon as their companies recovered,

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<v Speaker 1>it was like, I'm putting selling on my agenda. It's

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<v Speaker 1>something I'm going to think about every year, whether I

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<v Speaker 1>do it or not. But I want to do it

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<v Speaker 1>or not. Um, there is so much money out there

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<v Speaker 1>taste chasing people that I think people took advantage of that.

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<v Speaker 1>So I think they're probably just I don't have the statistics,

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<v Speaker 1>but they're just simply less companies for sale right now.

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<v Speaker 1>Family businesses and succession planning when you don't have the

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<v Speaker 1>next generation waiting in the wings. Walk us to a

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<v Speaker 1>little bit of that process. How you can get someone

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<v Speaker 1>to see that if no one in the family is

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<v Speaker 1>going to take over the business, you've got to start planning. Now, Okay,

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<v Speaker 1>so first of all, it's a This has always been

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<v Speaker 1>a little bit of a mystery because most privately held

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<v Speaker 1>companies are not family business. They're usually started by an entrepreneur.

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<v Speaker 1>They don't tend to give the company to their son

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<v Speaker 1>or daughter because they recognize the fact that they don't

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<v Speaker 1>necessarily have the tools to be an effective president. So

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<v Speaker 1>it's rare that we will sell a company that is

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<v Speaker 1>second or their generation because either they don't make it

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<v Speaker 1>or that transition never happened. Okay, So maybe they want

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<v Speaker 1>to liquefy their position in some way. They're thinking of retiring,

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<v Speaker 1>and they want to take some money out of the business,

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<v Speaker 1>right right, I'm sorry, that's right. So well, just in

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<v Speaker 1>a couple of seconds, are you seeing more activity in

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<v Speaker 1>that level? That's always been That's always been the market.

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<v Speaker 1>It's always been the market. People who have started businesses

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<v Speaker 1>that want to sell and generally have not transitions to

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<v Speaker 1>the second with their generation. Patriots Mitchell, thank you so

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<v Speaker 1>much for joining us and giving us uh I into

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<v Speaker 1>your world. Fascinating you appreciate it. She's co founder and

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<v Speaker 1>managing director Sperry Mitchell and a company she's joining us

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<v Speaker 1>here at the Bloomberg Breakaway Summit. I'm Kathleen Hayes along

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<v Speaker 1>with Pim Fox, and this is taking Stock on Bloomberg

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