Source Talks is a series where we discuss deal origination with PE and M&A pros, in collaboration with David M. Toll.

In this episode David speaks with Steve Hunter, Managing Director at TM Capital, about the change in mindset COVID had on founder-owned businesses and the resulting shifts in the market impacting Private Equity firms.

Machine generated transcript below:

Steve, tell us a little bit about TM Capital and the kinds of things that you do there.

TM Capital is a fairly traditional middle market sell side investment bank. We were founded in 1989 in New York. Today, we’ve got three offices in New York, Boston and Atlanta. We have slightly under 40 employees and we cover five industry sectors; industrials, consumer, business services, technology and health care.

Talk a little bit about some of the newer trends that you’re seeing that that are generating deal opportunities for private equity firms today.

I think the two things that we’ve seen that have really come to the forefront, one is sort of the focus on growth. An example would be we sold a tissue manufacturer called Sun Paper to a portfolio company of Gridiron Capital. And, you know, it’s a family-owned business. The family had been thinking about doing something. And, you know, because of the demand for with everyone at home and the demand for toilet paper and tissue and paper towels, you know, the company was just having an unbelievable year, I’d say.

The second is, you know, once the dust started to settle on COVID, say, in April and May, you know, from April 1st through really the end of September, October, almost all of our inbound inquiries were from founders, you know, with very little activity from private equity sponsors. And I think there were two things driving that.

One is most of the private equity sponsors felt like the credit markets were really still pretty adversely affected by COVID. So if there was a business they were going to bring to market last year and they were going to be able to get four or five, maybe six times leverage on it, they just didn’t feel like they were going to get that now.

And more importantly, I think the founders, they kind of viewed it as what we saw was a lot of founders who had been thinking about doing something but hadn’t pulled the trigger on it. They got through COVID with without a lot of disruption or they were able to get through COVID without being severely impacted.

And the minute they had the time to do it, they said, you know what, I’ve had enough of this. I’ve had sort of a near-death experience. The business has survived, OK? I almost missed my window. It’s time to do something. I think those two things have really also gotten a lot of business owners and private equity people thinking, you know what, 2021 might be a really good time to have an exit.

So our pipeline is as strong as it has ever been as we head into 2021.

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