Exit and Growth Strategies for Middle Market Businesses

Industrials Industry M&A News

By John Hammett | Feb 11, 2016

industrials industry M&AIndustrials Industry M&A Update

If oil prices remain low in 2016, industrial equipment wholesalers serving the energy industries may seek to alter their inventory and/or marketing strategies toward other industrial end-use markets with stronger growth potential. Global oil prices, a demand indicator for industrial equipment wholesalers that serve energy markets, are expected to average $57 per barrel in 2016, according to a recent Wall Street Journal poll of 11 investment banks. A global oversupply of crude oil in 2016 is expected to keep prices low, which could hurt demand for oil field equipment. In recent earnings calls, several oilfield services companies reported the industry is using sidelined machinery for spare parts to keep the equipment that is still operating in proper working order, according to The Houston Chronicle. Parts salvaged from idle equipment include motors, transmissions, and pumps.

US manufacturing activity, a demand indicator for industrial supply wholesalers, grew for the 33rd consecutive month in September 2015, according for the Institute for Supply Management (ISM). However, manufacturers generally reported slowdowns in new orders, production, and employment. Of 18 manufacturing industries reporting to the ISM, seven reported growth in September, including printing and related support activities; textile mills; furniture and related products; food, beverage, and tobacco products; paper mills; and nonmetallic mineral products. Manufacturing industries reporting contraction in September included primary metals; apparel and allied products; petroleum and coal products; wood products; electrical equipment, appliances, and components; machinery; computer and electronic products; and transportation equipment. Low oil prices are creating concerns for some industries including primary metals and petroleum products. The strong dollar has affected procurement costs and exports, and there is growing concern about economic uncertainty in China.

Industry Indicators

  • Total US manufacturers’ shipments, an indicator of demand for industrial supplies used in manufacturing operations, fell 4.2% year-to-date in November 2015 compared to the same period in 2014.
  • Total US wholesale sales of durable goods, a potential measure of industrial demand, rose 1.5% in November 2015 compared to the same month in 2014.

Posted by John Hammett.

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

M&A News from the Transportation and Logistics Sector

By Doug Nix | Feb 04, 2016

Transportationa and Logistics sectorM&A Trends

Many of the larger companies in the transportation and logistics sector are looking to M&A as a means to grow revenue and expand capabilities. A prime example is FedEx’s 2015 acquisition of 3PL provider Genco, which enabled FedEx to expand its ability to process returns and provide other third-party logistics services.

Industry Update

Companies involved in freight forwarding and logistics are increasingly looking to acquire businesses in other countries to grow sales and remain competitive. In a bid to increase its scale and reach, Danish transport and logistics provider DSV agreed to purchase US-based UTi Worldwide for $1.35 billion in October 2015. The combined companies will have employees in more than 80 countries and a significant presence in Europe, the Middle East, North Africa, and the Americas. Other cross-border deals announced or completed in 2015 include the acquisition of US-based APL Logistics by Japan’s Kintetsu World Express, US-based XPO Logistics’ purchase of Norbert Dentressangle (France), FedEx’s bid for TNT Express (Netherlands), Japan Post’s acquisition of Toll Holdings (Australia), and France Geodis’s purchase of US-based OHL, according to American Shipper. Read more »

M&A News – Engineering & Construction

By Jeff Johnson | Jan 28, 2016

M&A News Construction & EngineeringIndustry Update – Engineering & Construction

Larger buyers are continually seeking smaller acquisitions of companies with specific capabilities to provide greater services to the market. This is especially true in the area of infrastructure based engineering & construction with a focus on rail and transportation.

A larger percentage of US construction firms are paying their bills sooner and receiving better credit ratings, according to The Wall Street Journal. Weather woes and shortages of labor or materials often contribute to later bill payments by companies in the construction industry than by companies in other industries. But that is changing, according to a Creditsafe study that compared data generated between July 2014 and July 2015. US construction companies paid their bills 9.5 days past due on average, compared to an average of 11.5 days past due the previous year. The business-credit company also found that roughly 250,000 construction firms, or 6%, are no longer considered to be high-credit risks as compared to a year earlier. The Associated General Contractors of America, whose members focus primarily on commercial projects, attributes the credit upswing to steadily growing demand for construction services nationwide. Also helping to improve the financial health of construction companies are double-digit increases in home-construction starts and high US construction employment.

  • The value of US nonresidential construction spending, an indicator of the health of the construction market, rose 9.3% year-to-date in November 2015 compared to the same period in 2014.
  • The value of US residential construction spending, an indicator of the health of the construction market, rose 13.1% year-to-date in November 2015 compared to the same period in 2014.

Posted by Jeff Johnson.

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

Status Quo in M&A?

By Kim Levin | Jan 27, 2016

status quo in M&AGF Data recently published its Q3 M&A report and the take away from their collected data is a slight variation on the status quo in M&A…or more accurately “Less of the Same.”

Trends in transaction activity remained fairly constant, but the number of completed deals dropped over 27% from the second quarter to the third, 51 deals to 37.  This drop off may be slightly exaggerated due to late reporting, but the volume in the September quarter was light.

Size premiums remained at near record levels and valuation rewards for better than average performing companies continued.  Companies in the $50-250 million total enterprise value range traded at an average of 8.0x for the first nine months of the year, while smaller size companies ($10-50 million) traded at an average of 6.3x. Buyers continued paying premiums for companies with not only better than average financial performance, but also prior institutional ownership and management retention post sale.  Buyouts featuring these elements have been valued at an average 8.9x year to date.

Prior to 2012, buyers paid anywhere from .2x to 3x more for platform vs. add-on acquisitions.  During the past three years, the valuation differences between platform acquisitions and add-on acquisitions have narrowed significantly and in the most recent quarter – 3Q 2015 – add-ons had the upper hand. Valuations for the year are now about even for the two groups – 6.9x for platforms vs. 6.8x for add-ons.

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M&A in 2016

By Catherine Patience | Jan 19, 2016

M&A in 2016Crystal balls, psychics, astrologers and forecasters all attempt, with varying degrees of accuracy and success, to predict the future.  When it comes to private investment, and M&A in 2016, the picture is even more murky due to the scarcity of reliable information and layers of confidentiality surrounding completed transactions.  Pitchbook, a collector and provider of private company data, did a nice job of translating recent data into hints at what the M&A future may look like next year in their recent Crystal Ball Report for 2016.

We will likely see deal multiples continue to slide a bit lower and deal volume, which lagged in 2015, continue to decline.  One bright spot in this scenario is lower middle-market add-ons which should see volume levels at or near those of 2015.

Read more »

PE Firms Targeting Middle Market Companies

By Kim Levin | Jan 12, 2016

middle marketTargeting middle market companies will likely hold true in 2016

Private equity (PE) investors are focused these days on both their investment exits and new capital commitments.  The third quarter of 2015 saw deal counts slump to levels not seen since the second quarter of 2013.  High valuations are keeping some firms from pulling the trigger on new investments while at the same time racing for the finish line on exits as the “seller’s market” continues to weaken.  World economic and political volatility remains a concern and is impacting PE exits, prospective targets and current portfolio holdings.

With valuations still at near record levels, 2015 has seen PE firms focusing their attention on investment targets in the middle and lower middle market and investing in smaller deals at slightly lower multiples.  At these price points, the PE investors still have room to enhance and exit within their pre-determined time frames and reach their desired rate of return.  Many PE investors would rather stay active and look to non-controlling stakes in profitable businesses than sit on the sidelines or worse, overpay… and middle market and lower middle market businesses sit squarely in their sweet spot.  To date, add-on investments have accounted for a record 62% of all PE investment in 2015.

This trend of targeting middle market companies will likely hold true in 2016 as well, as PE firms are still sitting on billions in “dry powder” that they will look to place.  Look to sectors that have been particularly hard hit, like energy, to provide a window of investment opportunity.

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What Will Cause a Buyer to Walk Away From Your Deal?

By David Sinyard | Jan 06, 2016

walking away 2What can keep the transaction from closing?

After you have made the decision to sell your business and you have an agreement with a buyer, what can keep the transaction from closing? An understanding of the review and approval process of the buyer will help understand what might happen and can potentially save you from making costly mistakes that can de-rail your deal.

A buyer (in our example a private equity group) will conduct a significant amount of due diligence on your company before it provides a Letter of Intent outlining the major terms of the agreed acquisition. This means that they have analyzed your industry, looked at your business in detail, met the management team and reviewed the financial statements that you have provided. Read more »

M&A News From Media, Technology & Telecom

By Dan Vermeire | Dec 31, 2015

Techonology, Media & TelecomMajor growth in Media, Technology & Telecom is forecast for the use of 3D printing in a variety of business applications, raising a host of data protection issues for IT professionals, according to a recent report in InformationWeek. IT workers will likely be called upon to address issues related to theft of intellectual property and to prevent counterfeit products from entering the market. For example, manufacturing companies may need to protect pictures and drawings of product designs to prevent unauthorized 3D printing of goods. Related IT tasks may include securing files and their transit over corporate networks, as well as limiting or blocking file sharing and the end user’s 3D printing of the files.

The recent launch of a wearable computing device by Apple could jumpstart the smartwatch category, creating new opportunities for software developers. The company launched a line of Apple Watches in nine countries in April 2015. Combining the functionality of a timepiece with communication capabilities and health-related applications, the devices will compete against offerings from LG, Pebble, Samsung, and Sony, among others. The burgeoning list of applications for the Apple Watch already includes business, home automation, music, news, sports, and travel apps, and the device’s long-awaited debut is expected to spur development efforts across the market. Good Technology, Microsoft, and are among the companies developing collaboration, productivity, and sales apps for the Apple Watch, according to Network World. Game makers are also targeting the Apple Watch and other wearables, despite the challenge presented by the devices’ small screen size.

  • Total US revenue for computer systems design and related services rose 6.2 percent in the second quarter of 2015 compared to the previous year.
  • Total US revenue for software publishers rose 2.8 percent in the second quarter of 2015 compared to the previous year.

Posted by Dan Vermeire.

Read the Entire Technology, Media and Telecom 4th Quarter Newsletter Here

Metal Fabrication Industry News

By Robert Contaldo | Dec 23, 2015

Metal FabricationNew orders for metal fabrication products declined 1% in the first five months of 2015 compared to the same period a year earlier; shipments rose less than 2%. Some fabricated metal product manufacturers may be seeing reduced orders from key customer groups that are experiencing drops in demand. New orders for machinery dropped nearly 9% in the first five months of 2015; shipments were down nearly 2%. Sharp order declines for nondefense and defense aircraft (25% and 17%, respectively) drove a 4% drop in new orders for transportation equipment. However, motor vehicles and parts remain a bright spot in the transportation equipment sector; motor vehicles and parts new orders and shipments both rose more than 8%.

  • US durable goods manufacturers’ shipments of fabricated metal products, an indicator of fabricated metal parts production, rose 0.5 percent year-to-date in August 2015 compared to the same period in 2014.
  • According to data from the Interindustry Economic Research Fund, Inc. (IERF), an economic research group, revenue for the US manufacturing sector is forecast to grow at an annual compounded rate of 5% between 2015 and 2019, based on changes in physical volume and unit prices.
  • US steel mill product prices, an indicator of commodity steel costs for industrial machinery manufacturers, fell 14.1 percent in August 2015 compared to the same month in 2014.

Posted by Robert Contaldo.

Read the Entire Metal Fabrication 4th Quarter Newsletter Here

Using Systems in Your Business

By George Walden | Dec 17, 2015

I was recently interviewed by Texas Business Radio, a program focused on business best practices.  I wanted to share my thoughts about raising the value of a company.  Click on the video below to watch my interview.

Posted by George Walden.