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Letter: Smaller businesses are big beneficiaries of M&A flight to quality

By Sunbelt CEO Brian Slipka, Minneapolis, MN, US

The FT has reported that since the Silicon Valley Bank collapse, we have seen a massive “flight to quality”, with customers flocking to large US financial services companies such as JPMorgan Chase, Bank of America, and Citigroup (“Big US lenders flooded with new customers,” Report, March 15).

The flight to quality is not only a trend in many corners of the financial services sector but also in how business is conducted and how transactions are being completed. It is people seeking something different — something they can trust and believe in.

Regarding mergers and acquisitions activity, for example, uncertainty in the market and the higher cost of transactions in the last year have already driven investors towards a flight to quality. We have seen fewer but higher quality and more strategic buyers, and multiples that have remained strong. This applies to transactions of all sizes in recent months. Confidence and trust over all else: that’s the mantra of the investors in the current flight to quality.

In this environment, businesses — and people and business leaders — that remain consistent and reliable, not flashy, will be coveted in 2023 and beyond, more than ever. Looked at another way, the flight to quality is creating a highly competitive market for investors and strategic buyers looking for businesses that are well-positioned and businesses that can withstand hardship. Thus, the flight to quality offers a distinct opportunity for small businesses — those employing up to hundreds, rather than thousands, of people — to shine. Often the unsung heroes of the economy, small businesses are a hallmark of consistency and reliability throughout unstable economic times.

Small businesses that have demonstrated they can withstand the pandemic, international political upheaval, market volatility, and more should be attractive M&A targets for investors. Indeed, this could be the time that small businesses, which account for nearly half of all US employment, get the attention they deserve. DGP Capital reports that well-run companies continue to receive multiple offers, despite buyer cautiousness during the flight-to-quality trend.

The bottom line: many small businesses — and the people in them — should be attractive to investors flocking to quality in 2023.