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By: Ben Hangge, Senior Vice President/Senior Commercial Banker, Highland Bank
In the dynamic world of mergers and acquisitions (M&A), the small business and lower middle market segment plays a pivotal role in driving economic growth and fostering innovation. As we navigate through a rapidly evolving business landscape, the choice of financing for these transactions becomes paramount. Boston-based management consultant Bain & Company revealed in its mid-year 2023 report that macroeconomic forces and interest rate uncertainty contribute to continued caution among seller and buyers alike. While larger banks and financial institutions often take the limelight, this need for added flexibility points to community banks, who have emerged as hidden gems, offering unique advantages tailored to the specific needs of small businesses and lower middle market enterprises.
The M&A market has experienced significant shifts over recent years. Small businesses and lower middle market companies have become increasingly sought after for their agility, niche expertise, and potential for rapid growth. However, these enterprises often face distinctive challenges in securing financing for their M&A endeavors.
Access to capital remains a pressing concern, particularly when it comes to funding acquisitions. Traditional lenders may be hesitant due to perceived risk factors associated with smaller entities. This is where community banks step in, proving themselves as reliable partners capable of providing tailored solutions to fuel M&A transactions.
Think Big by Thinking Small
Personalized Approach: Community banks are known for their personalized approach to banking. They take the time to understand the unique needs and aspirations of small businesses and lower middle market companies. When it comes to M&A financing, this means crafting solutions that align with the goals and financial capabilities of the businesses involved.
Local Expertise: Community banks are deeply embedded in the local business ecosystem. They possess a keen understanding of regional economic trends, industry dynamics, and regulatory nuances. This local expertise translates into better-informed decisions during M&A financing, reducing risks and enhancing the prospects of successful outcomes.
Relationship Focus: Unlike larger institutions, community banks prioritize building strong, long-term relationships with their clients. This focus on relationship-building extends to M&A transactions. Entrepreneurs benefit from working with bankers who have a vested interest in their success and are willing to go the extra mile to structure deals that work in their favor.
Ability to Execute: Community banks are characterized by their agility and ability to execute swiftly. In the context of M&A, this attribute is invaluable. Community banks can streamline the financing process, ensuring that opportunities are seized promptly and transactions move forward smoothly. Their leaner operational structure allows for quicker decision-making, contributing to successful deal closures.
Access to Decision Makers: Unlike larger financial institutions where decision-making can be convoluted, community banks provide direct access to decision-makers. This direct line of communication accelerates the decision-making process and fosters transparent discussions. Entrepreneurs can engage with key stakeholders who understand their businesses, resulting in tailored solutions and expedited approvals.
Flexibility and Agility: Community banks are renowned for their flexibility in adapting to changing circumstances. This flexibility extends to the M&A arena, where transactions can evolve rapidly. Community banks can swiftly adjust financing terms and structures to align with new developments, giving businesses a competitive edge in navigating the complexities of M&A.
Holistic Financial Solutions: Beyond just financing, community banks offer a range of financial services that can support M&A transactions. These include treasury management, cash flow optimization, and local connections for post-acquisition integration support.
Stability and Longevity: Community banks have demonstrated resilience over time, weathering economic downturns and market fluctuations. This stability is a reassuring factor for businesses looking to secure financing for transformative events like M&A. Entrusting such significant endeavors to a stable financial partner can alleviate uncertainty and foster confidence.
In the landscape of M&A financing for small businesses and lower middle market enterprises, community banks stand out as indispensable allies. Their personalized approach, local expertise, commitment to relationships, ability to execute swiftly, direct access to decision-makers, flexibility, and comprehensive services makes them invaluable partners in navigating the complexities of mergers and acquisitions. As the business world continues to evolve, the advantages of utilizing a community bank for financing are poised to remain a key driver of success in the small business and lower middle market M&A market.
Ben Hangge, Senior Vice President/Senior Commercial Banker, Highland Bank
Hangge is a senior commercial banker at Highland Bank who primarily serves lower-middle-market commercial and real estate clients. With nearly 20 years of experience, he offers a broad range of expertise in all types of commercial banking. Throughout his career, Hangge has provided well over $200 million in new financing for his clients. He holds a Bachelor’s Degree in Economics, Finance and Marketing from Bethel University, St. Paul, Minnesota.