The Minneapolis-based i-bank has formed a lower middle-market group named Lower Mid-Market Group (LMG) to advise companies with valuations of between $10 million and $40 million, a niche often occupied by business brokers and local boutiques.
David Santoni, the head of Goldsmith’s financial sponsors group, said in the last four or five years Goldsmith has started to hear from private equity clients, “this deal is too small for you.”
That didn’t sit well with the bank. His team decided only a specialized group—with its prominent link on the Goldsmith Web site—would help deliver that message. “We had a list of 100 private equity funds below $100 million,” said Santoni. Many of those may not graduate to put together larger funds, but some that start small will ideally give Goldsmith bigger business further down the line.
Gary O’Brien, former owner of Benakis & Co., a boutique M&A advisor, which Goldsmith bought last summer, will head the practice. Benakis has a Midwest focus it is looking to expand and typically staffs its deals with two or three professionals. The LMG team is based in Minneapolis and has four active engagements right now.
O’Brien said private equity firms looking for add-ons for their portfolio companies are often snooping in this smaller range. O’Brien said he is working with a client now that doesn’t normally play in the lower mid-market space, but which owns a $500 million food company that is selling a relatively puny non-core asset. He added that there’s a certain skill set in dealing with smaller businesses that bankers from larger firms may not have. For one, at smaller companies audited financials can be hard to come by. When it comes to numbers, “you can’t just press a button and it’s all on your desk at the end of the day,” said O’Brien. Also, O’Brien recently helped sell a metal welding outfit that had 60% of its $25 million sales comes from one single maker of motorcycles and ATVs. This kind of high single source of revenue is also typical down market.
Goldsmith isn’t the only one with a focus on the lower middle market, either on the buy side or advisory side. Riverside Co. is in the midst of raising its first $200 million microcap fund, which targets companies with under $3 million in EBITDA, and has also been adding employees over the past year to beef up its micro focus. One other firm doing advisory work in that space is Harris Williams, which started its Cobblestone Advisors in 1998, to focus on businesses in the same price range.
Mark DeBlois, a managing partner with lower mid-market focused
In other Goldsmith news in the last few weeks, the firm advised Midland Container Corp. on its sale to