Podcast: The Importance of Mergers and Acquisitions in the Middle Market

By Noah Rosenfarb
Published: January 13, 2014 | Last updated: March 21, 2024
Key Takeaways

The middle market represent one-third of private sector GDP and employ approximately 25% of the total labor force. Yet, it is estimated 70% of mid market businesses can never be sold. Michael Nall, Founder of the AM&AA, provides his insight on this concerning statistic.


In this podcast, Michael Nall, founder of the AM&AA, talks about:

  • Three things that owners should be doing now to start preparing for their exit;
  • Why mid-market business exit statistics are so abysmal and what can be done to improve the odds;
  • How to go about finding the right professionals to handle the "once in a lifetime event" of selling a business;
  • Why business owners need to be proactive in the exit planning process; and
  • The importance of middle market businesses to growth of our economy.

About the Guest

Michael is the founder of the Alliance of Merger & Acquisition Advisors (AM&AA), a Chicago-based international professional trade association serving more than 800 independent investors, accountants, attorneys, and other highly qualified corporate advisory and transaction professionals in more than 22 nations.


With the benefit of more than 30 years of experience in the middle marketplace of privately-held companies, Michael organized the development and launch of a "1st of its kind" professional training and credential designation for the independent corporate financial advisory community; Certified Merger & Acquisition Advisor (CM&AA).

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Read the Full Transcript Here:

Noah Rosenfarb: Hello everyone and welcome! It’s Noah Rosenfarb, the author of Exit Healthy, Wealthy and Wise here today with Mike Nall. Mike is somewhat famous for being the founder of the Alliance of Merger & Acquisition Advisors. He is also the founder of the MidMarket Alliance which is new to me and maybe new to some of you. We’ll talk to Mike about what his experience has been in the M&A world and hopefully he’ll share some great stories with us.


Thank you so much for joining us, Mike!

Michael Nall: Thank you, Noah, for the kind words and thank you for having me.

Noah Rosenfarb: I have always mentioned to Mike about a little more than half of our audience is advisors to owners and the other 30% or 40% is made up of business owners. If you can speak to them a little bit about in all your years of experience, what would you say are the three things that maybe owners should be doing now to start preparing for their exit?

Michael Nall: It’s a great question in that having worked with privately the owners and their advisors for a number of decades since the mid-80’s when I sold my accounting practice because I had a client that needed help. We’ve learned a lot about what works, what not to do, and the private company marketplace, and one of the things that I think is most important is simply to develop an understanding and awareness of the marketplace. This of course is not taught in business school and really if you look at the popular press and so much in the general media strain, it has been overlooked in the past and almost all of our focus from a business perspective has either been in larger public companies or on smaller mom and pop type main street businesses.

Our organization has developed a great deal of know-how and we have many valuable relationships who share information and best practices for middle market private companies generally with revenues between $5 and $500 million for the most part, sometimes a little smaller and occasionally a little larger, but this is the overlooked grey market that often times firms are just not well served in this area. One of the things you should do is certainly understand the marketplace, get as much information and that is obviously a good starting point.

I’d have to say item no. 2 would be to connect with knowledgeable professionals who have experience in this marketplace. It’s certainly a large and fragmented marketplace. Some would call it a flea market when it comes to the connecting of companies and investors, capital sources of all types. Knowing the people on as to who would be helpful, that clearly would be the second thing I think we’ve observed, Noah.

The third thing would obviously be relative to the operation of the business itself in terms of performance and profitability. What we found is that many private companies are not run for maximum value or profitability. Oftentimes, many company owners are not investing in the people or the systems in order to create enormous market value, but instead are more interested in the current income. The income could be generated from the company just by running it, but sometimes we found where companies will milk the cow to such an extent that they really haven’t invested in the systems and the people to create true market value that would be attractive to an investor. That will be item no. 3.

That’s what I’d say, understand the marketplace, connect with people who are knowledgeable and experienced in this special sector and then run the business so that you’re able to evidence significant market value and you can show this by being able to explain the past and sell the future, because remember that’s the most important factor for any investor is expected future profitability. Those are some of the major observations we’ve made after a long time in this overlooked and underserved private middle marketplace.

Noah Rosenfarb: Great advice and well summarized. Along with that, I think one of the challenges that owners face like you described is finding people that they can rely on and then coincident with that, instead of just milking the cow, making sure you’re feeding the cow too so you’re creating value. I guess my question on that is if you know if you’ve seen a trend in owners being willing to get prepared a few years before they’re ready to sell and if not, what do you think is going on?

Michael Nall: Certainly, it’s something that makes sense in preparing to sell just as you would prepare ideally for having a life event and that is the logical way to go about it. Sadly, I’d have to say that most of our more than 1,000 independent members now will tell you that it doesn’t happen as often as you might think. The marketplace today candidly is very unbalanced. By that, I mean I don’t think we’ve ever seen a situation where there was so much money available, such a ravenous appetite for success in private companies between large pools of capital that the private equity community manages on top of the corporate coffers. The synergistic corporate buyers are very cash-rich and thinking to grow by acquisition.

Another enormous pool of capital would be with high network individuals and many family offices. There are many of these private successful families now are seeking to invest directly in successful private companies. There’s a great deal of money available and debt is generally available as well. The difficulty though is that all of these investors are really seeking the most attractive companies only, so that leaves a number of companies that are not well positioned in terms of performance and profitability that the top cortile businesses are being bid up to lofty multiples, even higher, before the great recession, but many will tell you that there are not enough companies available. There’s unbalanced situation between the supply and demand. It’s clearly an extraordinarily seller’s market if someone has a successful company now.

Rather than being prepared what we’ve learned, Noah, is that for many of these companies, they don’t learn about the problem until they sit down to talk with an investor who might be ready to write a check and then as they start due diligence and begin to drill down in terms of the attractiveness of a business, and again as we talked earlier, business values are driven largely by one thing, expected future profitability. You position your company. You want to be able to explain the past because oftentimes in a private company, there are many personal, discretionary and nonrecurring expenses that need to be adjusted to show what it might have looked like if it had been run like a public company. That’s clearly one part of the preparation process.

Most important is to sell the future, to be able to evidence that through an investment of capital from new management systems, acquisitions, or expansions that the future opportunity is much greater than might have been the case in the past. The difficulty today is that for whatever reason many companies are very reluctant to add the professional help and begin the growth plan to position the company from maximum value and as we say many times this is not just made known until someone starts the discussion with a potential buyer.

Noah Rosenfarb: We’ve had some other experts on here, Mike, that espoused a few different statistics. I guess I could probably combine them altogether into something that says, something like 70% of businesses can never be sold and of the 30% that can be sold, 70% of them don’t get sold because they can’t close the deal at a value that the owner would agree on. Maybe, there’s a 70% that do sell that express remorse after it’s over because they wish they would have done more planning. Whatever it is, all those statistics seem to me to be pretty abysmal. Have you seen any shift in the last two decades that you’ve been working with advisers around that statistic? Are we making progress as a community in helping owners?

Michael Nall: It’s an excellent question. I’m not sure anyone knows the answer for sure. I do know the extent of the difficulty based on a survey of our members as well as my own personal experiences, a middle market intermediary. We know that 9 times out of 10, 90% of the time when one of our members goes to visit with a potential seller, 9 times out of 10 there just is not a transaction opportunity today. There is oftentimes too big of a value gap between what the owner or owners might like, want or desire in the way of transaction value and market reality. If there’s that sizable gap as there oftentimes is, 9 times out of 10, M&A professionals are not able to help and that is just the reality of the marketplace.

We find that it’s even much more pronounced by our private equity investors, many of which are members of our organization and they will tell you that they will do on average, 1 out of every 80 or 100 companies that they look at. Again, the difference of course being an adviser is taking on an assignment, a project, so they’re cautious to one level. An investor of course is making a much greater level of financial commitment so they are even more cautious. I don’t know what the numbers are but I know so often this value gap exists. To answer your question about what’s being done now, when people learn about these means, there is an emerging new group of independent professionals in this field of exit planning of which I know you’re an expert yourself.

We applaud and endorse those that are learning that skill set, those abilities, because the market need is so great and they have become a wonderful team member. We think that for a private company to sell for the highest price and most value, it’s a team sport. It cannot be done by any one superstar individual, but rather it involves an experienced professional CPA working in collaboration with a transaction attorney alongside with the experts as it relates to personal planning, investment banking, etc.

This area that I know you’re familiar with, Noah, is really a new profession, the exit planning profession. There are several organizations that have developed wonderful training and professional development programs and I think it’s simply in response to the market need with many of these private company owners who are baby boomers like myself from an aged perspective. More often than not now, those type of businesses are not being passed on to their children. When they do have one of these discussions and see this value gap problem become evident, I think exit planning professionals are an ideal way to help resolve this problem. Don’t you?

Noah Rosenfarb: I sure hope so. You know one of the things that I envisioned is that as exit planning becomes an accepted practice among the professional adviser community and then among the business owner community. I would envision there to be a blurring of the lines between the thousand members in your organization and the types of people that call themselves exit planners versus AM&AA advisors. What’s your take on that?

Michael Nall: Well, it’s a fundamental market need and yet what we’ve learned, Noah, is there is an entirely different skill set. We just had the 15th anniversary for the start of our AM&AA association. What we’ve learned is that the personality type and the skill set as a successful transaction advisor is a whole different type personality from someone that might be a more patient relationship expert who could work with a company over a period of months or years and helping them to improve profitability and to increase market value. You’d like to think that this could be done by the same individual or the same company, but that’s not in our experience.

Our experience is because people are paved differently and different by temperament and skill set, it really requires a group of independent experts who are willing to collaborate recognizing everyone has these difference we’ve talked about. We see this now emerging again in response to the market need, but it is something that is new and I think when you’re looking at working with experienced professionals in a new model, that always is going to take extra time to be able to see this all become a highly functioning, very efficient market solution, but it’s now emerging from several different groups around the US, and of course what we’ve learned in recent years too is that these needs are not just here in the US but when it comes to private company transactions, there’s an enormous cross border equity as well. Again, it can all relate to trusted relationships and having a solution process in place that facilitates deal making.

Noah Rosenfarb: Yeah. It’s interesting to hear you say that around the skill sets. I think one of the reasons that I would pick up from you is where we might not have this kind of continuum for an owner to go from exit planning to investment banking is because of the fragmentation in the industry itself. The owners don’t have a lot of brand names to choose from that they would know of when it comes to selecting an investment banker on a kind of a national scale. Do you see that changing over time? Part of Geneva, if anyone had been there and kind of done that, it might have been that brand. What would you say? Do you think we’ll see that come back again?

Michael Nall: I wish I knew. I’d like to think that there would be a more organized solution center, because you’re right. Today, most companies are at a loss on where to start the process, where to turn, because this is such a very highly fragment, very opaque marketplace. The association calls this the grey market and in many independent professionals working in this lower middle market that our association is now doing a great deal of work in both the SEC and congress. We call it the campaign for clarity to help provide a more clear picture as to when one would be required to be a registered rep with a thinner broker dealer and when that would not necessarily be required. There’s a great deal of confusion and uncertainty in the marketplace today and many of the professionals in this lower middle market have simply been working in what the American Bar Association calls the grey market.

We’d like to see people legal-trained and connected because we think that this profession, both the AM&AA advisory profession as well as the exit planning profession should be working in much closer collaboration and I think with some of the efforts that many independent professionals are making to professionalize the market, I think we’re going to see eventually a solution center come in to place. As you’ve said, Noah, today, it’s really quite a hodgepodge in that people are not quite sure where to begin the process, so they will oftentimes ask an independent CPA or they might ask a banker or an attorney and that really is how we got started as an organization. I had a CPA practice and one of my clients, two young men with a computer-based pulmonary testing device, needed help and they asked me as their CPA and of course did not know the answers on how to help them do a transaction or act in the private company marketplace. I found were many other CPAs at the time were not well prepared either.

That’s changing. People are now getting more knowledgeable through the internet and through organizations such as Association for Corporate Growth (ACG) and our own organization and others, but there still is no central hub, no recognized starting point, Noah. You’re very correct about that today.

Noah Rosenfarb: One of the solutions is for owners to kind of do their due diligence. My assumption is the MidMarket Alliance has kind of an intention to help business owners kind of cut to the chase and go to some pre-approved or pre-selected or pre-due diligence parties. Without necessarily talking directly about the MidMarket Alliance, what do you think owners should be doing to find who to trust? If they go to their accountant, how do they even know their accountant is going to make the right referral?

Michael Nall: You really want to be able to work with those who you confidently know are able to deliver. The reason why we say that is for many this is a once in a lifetime decision. For most private company owners, it would not be unusual to have 80% or 90% of their entire personal net worth locked up in the value of illiquid private company and so for a personal planning perspective, it doesn’t get much more important than this. We certainly would emphasize the need to do your due diligence in connecting with those who have a proven track record and not deal with somebody who is experimenting or learning this. I think most of our independent members tend to be with having more grey hair. The skill set required to be a competent professional in this area really is such that it’s positioned as an advanced professional capability.

You already have to have great competency as either an attorney or a CPA or having the MBA because the skill set to complete a transaction either on the sell side or buy side transcends so many different disciplines from accounting, tax, and law. Many would argue and if you’re working with private company owners, there’s also a great need to understand human behavior and psychology because of the nature of many self-made private company owners.

The point being, it does make sense I think in this case to do due diligence and complete homework through your existing professionals, most of whom are now aware on how to at least begin the process. I think that this is a discussion that you should make sooner rather than later, simply because most likely as we’ve talked earlier, it is evident that there’s going to be a significant gap between market reality and the current worth of the business. If that situation is to be remedied, it makes sense to start the plan early and of course it’s a wonderful time to be able to look at ways to grow a company today with cloud computing ease of scale on an international scale. There’s clearly a new business model that is available for many if they choose to be proactive, but it does all start with advanced planning and being very aggressive with the fact that one would insist on working only with experienced professionals who have the tombstones and the capability to deliver the best results.

Noah Rosenfarb: One of the things that I think is challenging for probably all of your members and the people that I speak with is that we just want to shake the owners and say, "C’mon, you got to do this. Wake up!" We’re giving you a great advice. We’re going to help you increase the value of your company. We’re going to help you save money on taxes and yet so many owners fail to take action. Do you have any best practices that you’ve assembled from your members that you could share with our audience that’s on the advisory side on how to motivate owners?

Michael Nall: I think one of the key reasons that people act is certainly out of, let’s say human behavior, we all act out of fear or greed. As an experienced professional in the marketplace, I know the frustration when someone recognizes the inability of others to be proactive. I think some of the saddest experiences I had in dealing with business owners who decided not do anything today. Some of the most tragic phone calls I would get where they might call six months or a year later or sometime after our initial meeting and inevitably something has happened, either technology changed, litigation, loss of a key employee.

We all know that if you’re in business things happen. I can’t help but think of the wealthiest men of the last century, a very accomplished entrepreneur who made massive amounts of profit on private companies, Bernard Baruch, when asked how he managed to amass such a fortune, he smiled and said, "I always sold too soon." The lesson for all of us being things happen. Clearly, I think we act out of fear or greed and fear is a much bigger motivator. The fact that everyone is going to exit this business for one reason, they’re human. It’s going to be sooner or later, voluntary or not, but it is going to happen and I think it’s a matter of avoiding the disaster and being proactive because there are so many options that can be made when a business has growth potential. Particularly, at a time like this where interest rates remain at unbelievably low levels and so much capital available, there really is a wonderful window of opportunity if one is proactive and chooses to not wait for one of these inevitable problems to arise.

That’s a lot easier said than done and you know how this goes, some will and some won’t. I think all you can do, Noah, is do the work you’re doing and trying to share the insight of others in the marketplace. The chips will fall as they do but certainly by being attuned to some of these issues and opportunities as I said the window of opportunity today I think is just extraordinary.

Noah Rosenfarb: I love that quote and I hadn’t heard it that "I always sold too soon." One of our other guest talked about client saying, "Things are just so good in my business now." So, I said, "You know what, so just call me when things are bad and then we’ll sell it then." Someone would definitely want to buy when things are bad.

Michael Nall: I guess for anybody who is a gambler. When you’re at the table and things are going good, it’s so hard to walk away, but obviously the experienced pros realize that trees don’t grow to heaven. All these things should go in cycles and it’s self-discipline and lots of other things that people smarter than I have been working on for a long time. Some will hear this message and take it. That’s probably all we can do, Noah.

Noah Rosenfarb: Before we go, I would like to talk about your upcoming annual meeting which is taking place, January 21st to the 23rd in Phoenix and for those of you listeners that are interested in learning more, you could go to the website. I wanted to know the theme this year is dynamic deal making. What do you foresee as the big trends in 2014 in the M&A market?

Michael Nall: One of the big trends has to be this enormous amount of money available and the fact that there’s simply so much equity and debt available. That’s certainly a fundamental that would impact the conference at this point. Another one are the changes taking place in Washington, DC. Our organization has worked with a number of other independent professionals in the private capital marketplace and we’ve introduced new legislation that would help provide legal clarity for independent M&A advisors for the smaller companies. Remember, this was something that the American Bar Association has called for many years and providing a special exceptive release for smaller private company transactions. This will help create and really is tied in with so many other changes going on in Washington with the one theme of removing regulatory burden and increasing access to capital to private companies, because we know that private companies are engine of growth and prosperity and many in Washington now are very anxious to see this fragile recovery become more and more robust.

We’re of the belief that there is going to be what many are referring to as JOBS Act II with many related legislative and other regulatory initiatives to remove these burdens and to provide greater flow of capital in a more vibrant private company marketplace. That would be talked about at great length at the conference. We’ve got many government officials and successful business owners that have built a company, so it’s not only going to be government officials, but we have a man by the name of Doug Ducey who is the founder and successful business owner of Cold Stone Creamery and is going to be running for governor of Arizona. He is currently the treasurer. This is one of the many featured speakers. There are more than 50 in the 3-day conference, but when it comes to a gathering of experienced investors, advisors and transaction support professionals of all types for business owners and others that are interested in this marketplace and how the whole effort is helping people to learn and earn more together. It is a very collegial share group.

Thank you for mentioning that, Noah.

Noah Rosenfarb: I guess if you’re not already in a warm climate, Scottsdale in Phoenix probably isn’t a bad place to be and it will change your mind.

Michael Nall: With Chicago’s temperature today, we’re all ready and looking forward to being out there and just little over 5 weeks.

Noah Rosenfarb: Mike, before we end our call, maybe you have a story that you’d like to share, some parting advice for the audience.

Michael Nall: I think one of the things that is our experience is the fact that there is I think an enormous amount of wealth that has been accumulated with private companies. I don’t know if everyone has had the chance to read a wonderful book called The Millionaire Next Door, but this talks about the fact that our economy has been built around successful private companies and it’s interesting to see the research now being done at the University of Ohio and other institutes that were done. This overlooked private company marketplace is now being studied and it’s very revealing our economy is really dependent on these hundreds of thousands of private middle market companies that have really in the past been overlooked.

The one thing we learned during the great recession is as it relates to job growth, the larger public companies were getting rid of jobs during the downturn and yet these private middle market companies continued to grow and add more people. We now have empirical evidence on how important this part of our economy is and of course it’s not just here in the US. We have just recently opened a chapter in Germany and the middle market in Germany is also the vibrant part of that strong economy.

I think that the most important thing we would like to note, Noah, is that the future looks very encouraging for this part of the economy, but it really does become a very personal and individual decision because decision-making really address on successful private company owner and we would encourage them to be very proactive in making all of the efforts, all that it could be by getting professional help, doing your homework, and being attuned to the marketplace especially when it’s as wide open and encouraging as it is today.

Noah Rosenfarb: So, Mike, for our audience that aren’t already connected with you in one way or another, how should they reach out? How do they get to know you?

Michael Nall: We would very much like to be able to connect with any independent business owner or professional that’s active in this marketplace, our membership is open to independent investors, professional advisors. We have business owners now that are being proactive and learning about these long before they might be considering selling so they’re well prepared. Another new dimension, Noah, that we found fascinating is we’re getting more and more corporate M&A employees from larger companies like Boeing and John Deere, both Cisco/Sysco, the Cisco the technology company as well as the Sysco the food company. They want to grow by acquiring private companies, so they’re sending their corporate development executives to our organization. We host the training and certification program and I’m happy to speak with anyone at anytime. They can reach us toll free at 877-844-2535 or as you mentioned earlier on our website at

Noah Rosenfarb: Great. Well, Mike, thanks so much for joining us. All our listeners, please if you enjoyed the interview, share it on LinkedIn, iTunes, Facebook, wherever you’re at, twit us on Twitter. However it is, tell a neighbor, tell a friend. We appreciate you sharing the podcast and certainly if you leave your reviews for us on iTunes or wherever you found us, we’d appreciate it. Feel free to get in touch with me if you advice or suggestions for the show. My email is [email protected]. I hope you join us again.

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Written by Noah Rosenfarb

Noah Rosenfarb
Noah Rosenfarb, CPA/ABV/PFS has devoted his career to advising business owners on all things related to money. He is a Personal CFO and Holistic Wealth Coach at Freedom Business Advisors, which provides middle market business owners guidance on how to successfully transition out of the management and or ownership of their company. Mr. Rosenfarb is the author of EXIT: Healthy, Wealthy and Wise.

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