InSight

Exit and Growth Strategies for Middle Market Businesses

M&A Quarterly News In The Industrials Sector

By Steve Hauser | Aug 16, 2019

The report below gives a good overview of the third quarter M&A activity in the Industrials Sector. M&A activity for North American – based target companies in the Industrials sector for Q2 2019 included 84 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in June when Archrock, Inc. agreed to acquire Elite Compression Services LLC from JDH Capital Co for US$416.2 million in cash and stock. Closing was expected in early August. As part of the acquisition, Archrock would obtain approximately 430,000 large-horsepower compression units. Elite Compression Services is headquartered in Victoria, Texas and provides contract midstream natural gas compression services, primarily in TX, OK, LA, and off-shore Gulf fields.

Read more »


The Basics of A Partial Company Sale

By David Hulett | Aug 15, 2019

Business owners often think about exit as an all-or-nothing event. Yet in many situations selling only some of your business can achieve many of your exit goals. Here’s how.

The Basics of A Partial Company Sale

Selling less than 100% of your company is called a private recapitalization, or recap for short. Private recaps occur where the buyer acquires anywhere from 10% to 90% of the target company. A critical question is whether the buyer acquires a controlling interest in the company, meaning more than 50% of the voting stock. Whether or not you sell more than 50% largely impacts who is in charge of the day-to-day operations of the company.

Potential buyers include private equity groups (PEGs), family offices, and other companies.

Advantages of Selling a Piece of Your Company

Business owners are often surprised by the powerful advantages that can come with a partial sale of their company.

One: Get Cash and Reduce Personal Risk

The number one benefit of a partial sale is it offers an opportunity to convert some of your ownership into cash and reduce risk. We are finding that many entrepreneurs want to de-risk their lives but they are not ready to quit altogether.

A partial sale can allow for an entrepreneur to “take chips off the table” and still run the company.

Two: Keep a Portion of the Company for a Later Sale

The second most attractive benefit of a private recap is you maintain some ownership in the company to sell the rest of your ownership at a later date, typically to your new partner.

Three: Stay Involved with the Business…Or Not

If you want to remain fully involved in the business’s leadership and management, you potentially can. If you wish to scale back your participation to a purely strategic or advisory role, such as serving on the board of directors that too is commonly done. This benefit allows you to pursue any degree of involvement—as long as your buyer agrees with and supports the plan. The most common scenario is selling a portion of the company but remaining involved with day-to-day leadership.

Four: Secure Different Outcomes for Different Owners

If you have business partners, a private recap can allow different owners to pursue and achieve separate and incompatible individual goals. A partial sale can accommodate these differing goals, whereas a full company sale could not.

Five: Create an Equity Path for Top Employees

Another advantage of the partial sale is the ability to create an equity sharing plan for top employees who currently lack ownership. Within a partial company sale, an equity pool can be created to incentivize top employees.

Six: Gain a Powerful Partner

With any partial sale, a new business partner enters the picture. This new partner can revolutionize your company’s future: providing capital for expansion or acquisitions, opening doors to new markets, introducing cutting-edge technology, or injecting industry-leading leadership and experience. More modest benefits can include operating cost reductions and efficiency gains if the partner brings larger economies of scale or greater market credentials.

Conclusion and Next Steps

Private recaps are not for every owner or every company. A partial sale may receive a lower valuation multiple than might be achieved with a full sale, especially if the buyer is only acquiring a minority position. However, this potential disadvantage can be offset with the opportunity to pocket some liquidity now and retain ownership for the full sale at a later date.

Next time you find yourself asking, “Should I sell my company?” consider rephrasing that question to read “How much of my company should I sell?” CFA can help you answer that question.


M&A Quarterly News In The Energy Industry Sector

By Roy Graham | Aug 06, 2019

The report below gives a good overview of the third quarter M&A activity in the Energy Industry Sector. M&A activity for North American based target companies in the Energy sector for Q2 2019 included 58 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector closed in June when Austin Energy acquired the Nacogdoches Generating Facility from Southern Power Co., which is ultimately owned by The Southern Co. for US$460 million. The transaction enhances Austin Energy’s portfolio of services and products. Nacogdoches Generating Facility is located in Texas.

Read more »


M&A Quarterly News In The Wholesale Distribution Industry Sector

By Jeremiah Hughes | Aug 05, 2019

The report below gives a good overview of the third quarter M&A activity in the Wholesale Distribution Industry Sector. M&A activity for North American based target companies in the Wholesale Distribution sector for Q2 2019 included 149 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in May when Tailwind Management LP acquired Ring & Pinion Service, Inc., also doing business as RANDY’S Worldwide Automotive, Inc. and a portfolio company of PNC Erieview Capital, Linsalata Capital Partners, Inc. and the private equity arm of Barings LLC. The deal was reportedly valued at US$187 million. The deal reinforces RANDY’s growth and expansion strategy. Ring & Pinion Service is located in Everett, Washington and distributes automotive parts.

Read more »


M&A Quarterly News In The Hospitality and Leisure Industry Sector

By David Hulett | Jul 31, 2019

The report below gives a good overview of the third quarter M&A activity in the Hospitality and Leisure Industry Sector. M&A activity for North American based target companies in the Hospitality and Leisure sector for Q2 2019 included 66 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when Cedar Fair LP acquired the Schlitterbahn Waterpark & Resort New Braunfels and the Schlitterbahn Waterpark Galveston from Waterpark Management Inc, doing business as Schlitterbahn Waterpark & Resort, for US$261 million in cash, subject to certain working capital adjustments. The transaction increases Cedar Fair’s portfolio expands its footprint in the Texas region and accelerates its growth and profitability. The acquired waterparks generated annual revenues of approximately US$68 million in 2018.

Read more »


M&A Quarterly News In The Financial Services Industry Sector

By David Sinyard | Jul 29, 2019

The report below gives a good overview of the third quarter M&A activity in the Financial Services Industry Sector. M&A activity for North American based target companies in the Financial Services sector for Q2 2019 included 220 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in June when Intertrust NV acquired Viteos Fund Services, LLC, a portfolio company of FiveW Capital, LLC and PPC enterprises, LLC, for US$330 million in cash. Intertrust engages in the provision of private client, capital markets, corporate and fund services. Viteos Fund Services provides accounting, middle- and back-office outsourcing and licenses its platform to investment managers. The company was founded in 2003 and is headquartered in Somerset, NJ.

Read more »


M&A Quarterly News In The Commercial Real Estate Industry Sector

By Peter Moore | Jul 29, 2019

The report below gives a good overview of the third quarter M&A activity in the Commercial Real Estate Industry Sector. According to data released by CBRE, a leading commercial real estate firm, commercial real estate investment volume decreased by 12.7% year-over-year in Q1 to $99.6 billion. However, trailing four-quarter volume increased by 11.6% year-over-year, the second-highest rate since 2015.

Capitalization rates for the quarter declined slightly by 15 bps.

Commercial real estate acquisition volume lagged in Q1 driven by a rise in interest rates and pricing expectations.

Read more »


The Death Discount

By Patrick Powell | Jul 25, 2019

I recently had a conversation with a middle-market business owner who asked me about the value of an enterprise when the generation 1 owner (founder) passes away.  I walked him through a buyer’s perspective of how the business typically suffers a loss of value due to the loss of intellectual capital.  According to Wikipedia, “Intellectual capital is the intangible value of a business, covering its people (human capital), the value relating to its relationships (relational capital), and everything that is left when the employees go home (structural capital), of which intellectual property (IP) is but one component.”

I told him that I call it the “Death Discount”.  My apologies for the lack of tact, but this is a business blog.  How is it valued?  That depends on the buyer’s analysis, but don’t be shocked if it is up to 30 percent.

So, how does a business owner convey his or her intellectual capital to the business in way not to suffer loss at the end of the owner’s life?  Depending on the type of business, this can be exceedingly difficult.  The answer begins with a developing a thoughtful intellectual capital transfer plan.  Working with a business consultant can be helpful, because you want an outside view and analysis of the very important things that are not obvious, i.e. not on your balance sheet.

These things include the answers to questions which begin with “Who do I call when ________ happens?”.  In many businesses there are simply formulas which may be unrecorded to trigger a business founders’ decision to buy or sell property or other assets such as inventory.  Making these decisions timely may have contributed to the business’s profitability and in turn value.

The list of these intellectual capital items should be identified in your plan and documented to the best of the owner’s ability in order to transfer the value to the next generation of owners.


M&A Quarterly News In The Agriculture Industry Sector

By Dan Halvorson | Jun 26, 2019

The report below gives a good overview of the second quarter M&A activity in the Agriculture Industry Sector. M&A activity for North American based target companies in the Agriculture sector for Q1 2019 included 25 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in February when Nutrien Ltd acquired Van Horn, Inc. for an undisclosed amount. The acquisition enhances Nutrien’s retail business. Following the transaction, Van Horn joins Nutrien AG Solutions, a subsidiary of Nutrien Ltd. Van Horn is located in Illinois and produces and retails hybrid agricultural products.

Read more »


M&A Quarterly News In The Engineering and Construction Industry Sector

By Peter Heydenrych | Jun 26, 2019

The report below gives a good overview of the second quarter M&A activity in the Engineering and Construction Industry Sector. M&A activity for North American based target companies in the Engineering and Construction sector for Q1 2019 included 83 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in February when Authority Brands, LLC, a portfolio company of Apax Partners (UK) Ltd, acquired Clockwork IP, LLC, a subsidiary of Direct Energy Services, LLC, ultimately owned by Centrica Plc, for US$300 million. Founded in 1999, Clockwork IP is located in Houston, Texas and provides residential heating and cooling, electrical and plumbing services.

Read more »