Exit and Growth Strategies for Middle Market Businesses

Business For Sale by Mobile App or Web Portal?

By Peter Heydenrych | Apr 20, 2015

Phone with appsFor business owners looking to execute an M&A transaction to buy, sell or merge, or to raise capital for a privately owned company, the world has changed quite dramatically in the last 20 years. It wasn’t that long ago that Investment Bankers hand-searched the printed Thomas Register of Manufacturing Companies to find prospective buyers for their clients. The Thomas Register, of course, has gone online, along with numerous other searchable “databases” such as Hoovers, OneSource, Capital IQ, and so on. Online databases, however, is not where the story ends. Through Google, Bing and other search engines, the internet has opened up a vast world of access and connectivity.

In an Inc. Magazine article “Merger and Acquisition Deals Moving Online” Erik Sherman points to the growth of online venues as a key deal sourcing element increasingly used by M&A Professionals. The article suggests to an exiting business owner that ” …  according to an online global survey … you’d better get yourself online in the right places .. [along with any other search avenues you may explore]”. In a Bloomberg News article “An App for Finding the Perfect M&A Match” Manuel Baigorri writes, “There are apps for dating, shopping, and hailing cabs. Now there are apps for matching companies for takeovers.”

A 2012 Lead Generation Benchmark Report noted: “Over the past decade, the way people buy products and services has completely transformed.” The report characterized as a “Monumental Shift”, the change in buying behavior amongst small business purchasing decision makers, from the traditional reliance on vendors’ salespeople, to the self-empowerment derived from the ability to become educated and informed through research and social media access. Read more »

M&A News from the Metal Fabrication Industry

By Robert Contaldo | Apr 17, 2015

Metal Fab EtchingM&A activity in the metal fabrication space has been driven by the growth in employment, construction projects and increased manufacturing. In particular, growing demand for aluminum products across a variety of end markets is driving component sales making aluminum fabricators highly attractive M&A targets to acquirers looking to be vertically integrated.

According to First Research, an industry research organization, US industrial production of fabricated metal products increased about 4 percent in December 2014 compared to the same period a year earlier. Forgings and stampings saw some of the largest gains, with growth of more than 10 percent. Improving US construction spending likely contributed to a 6 percent increase in architectural and structural metals production. Fabricated metal product manufacturers also likely benefited from increased production in some key end-use OEM markets. US machinery production rose 12 percent in December 2014, and production of motor vehicles and parts grew 7 percent. Production of aerospace products and parts increased about 4 percent.

US manufacturing activity, a key demand indicator for industrial supply wholesalers, rose for the 17th consecutive month in October 2014, according to the Institute for Supply Management (ISM). Of the 18 manufacturing industries reporting to the ISM, 16 reported growth in October. Industries experiencing the strongest growth included makers of plastic and rubber products, textile mills, fabricated metal products, primary metals, electrical equipment, appliances and components, and nonmetallic mineral products. Overall, manufacturers reported faster growth in production, new orders, and employment.

Posted by Robert Contaldo.

Read the Entire Metal Fabrication 1st Quarter Newsletter Here

News From the Industrials Industry

By John Hammett | Apr 10, 2015

industrialsAnticipated growth in US industrials manufacturing could bode well for industrial equipment wholesalers in 2015. The Manufacturers Alliance for Productivity and Innovation Quarterly Economic Forecast calls for industrials manufacturing production to grow 4 percent in 2015. The economic environment is looking promising, with low inflation and stronger employment growth. High-tech manufacturing production is expected to grow 7.2 percent in 2015; non-high-tech manufacturing production is set to advance 3.8 in 2015. Good news for the industrial equipment distributors: industrial equipment expenditures are slated to grow 10.9 percent in 2015.

US manufacturing activity, a key demand indicator for industrials supply wholesalers, rose for the 17th consecutive month in October 2014, according to the Institute for Supply Management (ISM). Of the 18 manufacturing industries reporting to the ISM, 16 reported growth in October. Industries experiencing the strongest growth included makers of plastic and rubber products, textile mills, fabricated metal products, primary metals, electrical equipment, appliances and components, and nonmetallic mineral products. Overall, manufacturers reported faster growth in production, new orders, and employment.

Posted by John Hammett.

Read the Entire Industrials M&A 1st Quarter Newsletter Here

Food and Beverage Industry News

By Terry Fick | Apr 03, 2015

Food and drinkActivity in the M&A food and beverage sector over the past two years has been heavily driven by consolidation as large corporations gobble smaller brands in trendy sectors such as organic foods and energy drinks. However, there were also a fair amount of mega transactions over the same period as global brands looked to gain market share.  Tysons’ acquisition of Hillshire Farm is an example of a transaction where two meat-processing market leaders joined forces to make a strong case for domination in their space. According to First Research, an industry research organization, commodity pricing has a strong effect on industry dynamics. The price of critical commodities such as corn, soybeans, wheat, dairy, coffee beans, beef, poultry, vegetables and sugars and oils can increase significantly due to poor farm yields, unpredictable weather patterns and market reactions to government farm subsidies. One sector that may soon feel the impact of government policy is dairy. Dairy product manufacturers could see increased volatility in the market price of milk after the European Union phases out milk production quotas in April 2015. Established in 1984, the quota system caps the amount of milk that EU member states may produce annually – if a country exceeds the limit, as eight nations did in 2014, it must pay a tax penalty to the EU. Dairy product manufacturers can expect some volatility in global raw milk prices soon after the quotas are lifted, and they may be able to benefit from initial price declines as the food and beverage market responds to the additional supply.

Posted by Terry Fick.

Read the Entire Food & Beverage 1st Quarter Newsletter Here

Purchase Price Adjustments Can Mean Big Money

By Brad Purifoy | Apr 01, 2015

Upward Chart Money SignNo two M&A transactions are exactly alike, but one issue that will arise in almost every deal is that of a purchase price adjustment (PPA). Exactly when and why PPAs are structured, and how they measured are critical issues directly impacting how much money a seller will ultimately receive from the buyer in a transaction.

So what exactly is a purchase price adjustment, and how is it typically used in a transaction? There are many reasons they can exist, and in different forms, but in general a purchase price adjustment is used to ensure that a buyer will receive the amount of net assets that existed when the purchase price was determined and agreed to by the parties.

As background, a transaction usually comes together in stages, the first of which is when the parties agree on a basic price and deal structure (e.g. is the buyer buying assets or stock for a certain price). At this stage there is typically a term sheet or Letter of Intent (LOI) signed by the parties laying out this basic deal and some related terms and conditions. Once the LOI is signed, the buyer has an agreed upon time period to kick the tires of the business (have accountants review the books, etc.). This stage is often referred to as the Due Diligence period, and usually takes 60 to 90 days, or longer. Usually concurrently, negotiations regarding final documentations occur, third party lending arrangements and agreements are put into place, etc. And as final steps, the agreed upon documents are signed and the transaction funds. Read more »

Aviation, Aerospace and Defense Industry News

By Joe Contaldo | Mar 27, 2015

Jet PlaneAmong aviation, aerospace and defense companies in 2014 divestitures and spin-offs were strong, in part, due to the desire to exit businesses directly impacted by sequestration. There was also strong transaction activity in the fragmented and high-margin maintenance, repair, and overhaul (MRO) business supported by rising passenger traffic and higher utilization rates in growing regions.

According to First Research, an industry research organization, Aircraft makers based in China and Japan are taking on longtime incumbents Embraer and Bombardier in the regional jet market. Mitsubishi Aircraft expects to begin test flights of a 76 to 88-seat regional jet in the second quarter of 2015, with deliveries beginning in 2017. The company has set the goal of attaining 50 percent of the global market for regional jets over the next 20 years, according to The Wall Street Journal. Commercial Aircraft Corporation of China (COMAC) is also readying a new regional jet; the company recently took new orders for a 75- to 90-seat aircraft that is expected to be certified by 2015. COMAC hopes to capture booming demand for regional jets in China, a market that Embraer recently forecast will account for 16 percent of the global market for 70 to 130-seat jets by 2033.

Posted by Joe Contaldo.

Read the Entire Aviation, Aerospace & Defense M&A 1st Quarter Newsletter Here

Investment Bankers vs. Business Brokers – It’s Not Just About Size

By Dan Vermeire | Mar 25, 2015

Question marksThe Differences Between Investment Bankers and Business Brokers

You may hear the words “Business Broker” and “Investment Banker” used interchangeably. Some people think they mean the same. That is not completely wrong – both professions are aimed at financial transactions for a business. But, by any other measurement, the two words mean very different things.

One common misconception is that it’s all about size. That is, if you’re a business owner and you want to consider a transaction for your business, then you align with a Broker or an I-Banker, simply depending on the size of your business. Many people think an arbitrary revenue number, such as $2M or $5M, will decide.

Size matters, of course, but only in general terms – and there are many exceptions. With M&A, there are three main divisions. Business Brokers tend to operate in the lower revenue range, say $5M and below. Investment Bankers operate in the “Lower Middle Market” generally ranging from $5M to $250M. “Bulge Bracket” or Wall Street Investment Bankers operate at higher levels, generally $500M and above. Read more »

News From the Plastics and Rubber Industry

By Jim Zipursky | Mar 20, 2015

Plastics and RubberPlastics and rubber M&A activity has been fueled by larger companies and private equity groups looking acquire new technology to add to existing divisions or portfolio companies. As the economy continues to grow the plastics and rubber sector should see continued M&A activity.

According to First Research, an industry research organization, US plastics and rubber manufacturers stand to benefit from the US boom in natural gas shale plays, according to Trib Total Media. US production of ethane, a natural gas liquid, has increased significantly from shale plays including the Marcellus, Utica, and Bakken shale formations. In processing plants called ethane crackers, ethane is produced from natural gas. Ethane is then used to produce ethylene, the key ingredient in polyethylene plastic. Royal Dutch Shell is reported to be considering the construction of a new ethane cracker in Beaver County, Pennsylvania, to process natural gas from the Marcellus Shale. The US division of Brazilian petrochemical firm Braskem is proposing construction of an ethane cracker in West Virginia.

Posted by Jim Zipursky.

Read the Entire Plastics & Rubber 1st Quarter Newsletter Here


Engineering and Construction Industry News

By Jeff Johnson | Mar 13, 2015

Engineering and ConstructionM&A activity in the engineering and construction space has been driven in part by the desire to increase services and trades. General contractors have broadened their capabilities by acquiring specialty contractors but have also acquired design and consultancy firms as they look to offer a full-service value-added solution. A recent global example was Hill International, a global construction company, acquiring Cadogans, a U.K. engineering consultancy company, in November 2014.

The US is one of the top 10 most attractive national markets for investment in infrastructure, according to a recent report by engineering firm ARCADIS. But while the US needs to rehabilitate $3.6 trillion in existing infrastructure, government budgets are forecast to fund only about $2 trillion of this need by 2020, based on estimate by American Society of Civil Engineers. To fill the gap, investors and governments are exploring public-private partnerships (P3s) models that combine public money with private investment to fund needed infrastructure in engineering and construction.

Posted by Jeff Johnson.

Read the Entire Engineering and Construction M&A 1st Quarter Newsletter Here

Business Exit Planning – It Helps to Know What You Want

By Peter Ventre | Mar 10, 2015

Business Exit PlanningI am reminded that it helps to know what you want from life. Here in the Northeast last week was winter school vacation week. We took the opportunity to tour a handful of states looking at prospective colleges with my son, who like many 16 year olds has little notion of what he may want in a college or what lies ahead for him. We toured urban and rural schools, large universities and small quaint colleges, academically rigorous schools and school that were not so competitive, as everyone needs a back-up plan. Surprisingly by the end of a rather demanding travel week, even my son began to formulate opinions about what he liked and didn’t like. The trip will pay dividends next fall when he ultimately decides where to apply to college.

Many business owners seeking to exit their business remind me of my son. They are not sure what they want. Each owner has read or heard of industry friends who may have sold their business to an unrelated third party at high multiples, or transferred the business to their children, or sold the company to their employees through an ESOP structure or to members of their management team, or perhaps they sold a portion of the company to a private equity group and decided to stay on building the company further with an additional capital infusion. The right path forward to exiting a business is unique to each owner, their company and circumstances. What options best fit the company’s circumstances and also matches the desires of the owner, considering his personal situation. Are there options for the company at a price that would work for the owner to move on? Does the owner wish to retire immediately or do they wish to continue to work in some capacity for years to come? Are there other family considerations?

Business exit planning demands thought, planning, and knowing what you want as the owner.  Like many things in life, it helps to know what is important to you. If you are contemplating a business exit contact a Corporate Finance Associates representative, who would be happy to discuss the various options with you.

Posted by Pete Ventre.

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