Private Equity in 2022 is like Alabama Football – They don’t rebuild, they just reload

I recently attended an M&A networking event.  We heard from three private equity professionals about their outlook for 2022.  Across the board, it was unanimous that there is plenty of capital to deploy and the funds are on the hunt for investments.  It’s kind of like what we hear about Alabama football on a yearly basis, they don’t rebuild, they just reload.  I don’t know if this will be the case forever, but it clearly means that the M&A world in the near term is still on the move.  I thought it would be good to refresh our note from a few months back.

“Over the last few weeks, I have received repeated inquiries from clients that are looking to invest in manufacturing businesses (not to run them, but to invest in them).  Keep in mind, I would consider the people that are reaching out to be in the “sophisticated investor” class.  When I ask why manufacturing, their response is that they believe the next wave of capital investment for companies will be an expansion of the domestic footprint because of the supply chain issues.

What does this mean if you are a domestic manufacturing business looking for capital?  For starters, there appears to be a lot of interest from third-party investors.  What should you be doing right now to position yourself for this trend?  Well, your company’s leadership team, your mentors and professional advisors are all good resources to plug in with when developing your plan to raise capital.  Below are some talking points/questions and articles to consider:

• Talking Points/Questions
  • When is the last time you looked at your corporate documents?
  • Do you have up to date corporate records?
  • How often do you update your financial reports?
  • Do you have a good financial forecast?
  • If you were to receive $100,000, $1,000,000 or more, what would you do with it?
  • If someone gave you capital, what kind of return could you offer them?
  • What are the risks of investing in your company?
  • Do you want to take on debt or give equity to the third-party investor?
  • What do you think your company is currently worth?
• Articles
  • 9 Factors You Must Weigh Before Raising Capital – Inc.com
  • Be Prepared Before Raising Capital – Forbes.com
  • Everyone You (Don’t) Want to Know About Raising Capital – HBR.org”

Here are a few other things that may be of interest:

• How to increase profits and cash flow and capital structure (eisneramper.com)
• Lost Profits Versus Diminution of Value Overview (eisneramper.com)
• Economic Review: February 2022 – Silvercrest (silvercrestgroup.com)

Helpful Coronavirus Resource Pages

• EisnerAmper Coronavirus Hub
• NFIB Small Business Resources in Response to Coronavirus
• RKL Coronavirus Resource Page
• Trout CPA Covid-19 Resources
• The Tax Warriors Covid-19 Tax Resource Center
• COVID-19 (Coronavirus) Resources | Littler Mendelson P.C.

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As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.