Lehigh Valley M&A market robust, diversified

Mergers and acquisitions remain strong in the Lehigh Valley and are extremely diversified right now according to Jack Gross of Gross McGinley in Allentown.

He said the driving force behind such transactions remains the aging population and business owners looking to retire and pass their business along for someone else to run.

That’s where it gets complicated, Gross said.

“The percentage of family own business that make it to the second generation is small. The percentage that go to the third generation is miniscule,” Gross said.

So those looking to sell often need to find someone to sell to that’s outside of the immediate family.

The good news there, according to Gross, is that there is a strong supply of both those looking to sell privately held businesses and those looking to buy them.

And for those not sure how to proceed there are many firms that specialize in matching up those with a desire to sell with those looking to buy.

Gross said that the COVID-19 pandemic is one factor that has led many business owners to want to retire and sell their business.

“Lots of businesses were pushed over the edge,” Gross said. “People were in crisis mode and when they got back to stability they thought ‘I don’t want to do that again.’ That was the shove.”

One group that is buying up businesses is private equity investors. Gross said many such investors are out there acquiring a number of small businesses in a particular industry and combining them into a larger business and then selling them as a larger entity for a profit.

“They’re looking for a business with predictable, recurring revenue,” he said.

Right now, he said such acquisitions are in a variety of industries, compared to 10 years or so ago when specific industries – for example physician practices – were the target of M&A activity.

“There aren’t a lot of independent physicians anymore,” Gross said.

Currently, he’s seeing interest in mergers and acquistions in manufacturing, consulting, insurance and professional services.

“There’s really interest in every field I’m aware of,” he said.

In many instances while immediate family members aren’t taking over a business, those looking to sell can find someone with a vested interest to take over operations.

Gross said there are plenty of opportunitis for key employees to take over a company, or for a business to enter into an Employee Stock Ownership Plan (ESOP) so that employees as a whole can take over.

But for any successful privately held business, M&A will eventually be in the picture.

“Very few of them close their doors and walk away,” Gross said. “Businesses need to be transitioned somehow.”

That doesn’t mean there aren’t challenges with mergers and acquisitions.

If a business has been successful, it may be more challenging for a younger professional to be able to afford to directly buy the company because of its high value.

Currently, the high value of successful businesses coupled with higher interest rates can keep some people out of the market.

While there are hurdles, Gross said the M&A market in the Lehigh Valley is still very robust.

“There’s lots of interest in selling and lots of interest in buying,” he said.